What is NAV in a mutual fund, and does a low NAV mean cheap?
NAV is the value of one mutual fund unit. Learn how it is calculated, when it is declared and why a lower NAV does not mean a better deal.
NAV (net asset value) is the price of one unit of a mutual fund. When you invest in a fund, you buy units at the NAV; when you sell (redeem), you get the NAV for each unit you hold.
How NAV is calculated
A mutual fund pools money from many investors and invests it in shares, bonds or other assets. At the end of each business day, the fund house works out:
NAV = (total value of everything the fund owns − the fund's liabilities and expenses) ÷ number of units
For example, if a fund's investments are worth ₹500 crore, it owes ₹2 crore in expenses, and there are 20 crore units, the NAV is (500 − 2) ÷ 20 = ₹24.90.
When NAV is declared
NAV is calculated once a day, after markets close, and is published on the fund house's website and on the AMFI (Association of Mutual Funds in India) website.
Which day's NAV you get depends on the cut-off time. For most equity and debt funds, if your money reaches the fund before 3 pm on a business day, you get that day's NAV; after that, the next business day's. Liquid and overnight funds have earlier cut-offs.
Why a low NAV doesn't mean a fund is "cheap"
This is the most common misunderstanding. Imagine two funds holding exactly the same shares:
- Fund A started years ago; its NAV is ₹200.
- Fund B started recently; its NAV is ₹10.
If you invest ₹10,000 in each, you get 50 units of A and 1,000 units of B. If the shares they hold rise 10%, both NAVs rise 10% (to ₹220 and ₹11), and both investments are worth ₹11,000. The number of units doesn't matter – only the percentage change does.
So, unlike a share, a fund's NAV level tells you nothing about whether it is under- or over-valued. What matters is what the fund invests in, how well it is managed, its costs and its risk.
Things that affect NAV
- Price changes in the fund's investments (the biggest factor).
- Expenses: the fund's expense ratio is deducted daily, which is why the same fund's direct plan (no distributor commission) has a slightly higher NAV than its regular plan.
- Dividends (IDCW payouts): when a fund pays out income, the NAV drops by about the amount paid.
Key takeaways
- NAV is the per-unit value of a mutual fund, calculated once a day.
- The NAV you get depends on when your money reaches the fund (cut-off time).
- A low NAV doesn't make a fund cheaper or better – compare funds on returns, risk and costs, not NAV.