What Is NAV in Mutual Funds?

When you hear people talk about mutual funds, one of the first terms that comes up is NAV – Net Asset Value. Think of it as the price tag of a mutual fund, representing the per-unit value of all its assets after subtracting liabilities. But NAV is more than just a number; it’s a snapshot of a fund’s health, performance, and how much your money is truly worth on any given day.

Key Takeaways

• NAV stands for Net Asset Value, the per-unit price of a mutual fund scheme.
• It is calculated by dividing the fund’s total assets minus liabilities by the number of outstanding units.
• NAV is updated daily based on market movements and directly impacts the value of your investment.
• While important, NAV alone should not be the sole criterion for choosing a mutual fund.

What exactly is NAV in mutual funds?

NAV, or Net Asset Value, is essentially the market value of one unit of a mutual fund. It represents the price you pay when buying units and the price you receive when selling them.

For example, if a fund’s total assets are ₹100 crore and its liabilities are ₹5 crore, with 95 crore units in circulation, the NAV would be:

(Total Assets – Liabilities) ÷ Number of Units = NAV

 (100 – 5) ÷ 95 = ₹1 per unit

So, if you invest ₹10,000 in this fund, you will get 10,000 units at ₹1 each.

How is NAV calculated?

NAV is calculated using this formula:

NAV = (Total Assets – Liabilities) ÷ Number of Outstanding Units

• Assets include the value of stocks, bonds, cash, and other securities the fund owns.
• Liabilities cover expenses such as management fees and operational costs.
• Outstanding units are the total number of units issued to investors.

The Securities and Exchange Board of India (SEBI) mandates that mutual funds update their NAV daily, reflecting changes in market value.

Why is NAV important for investors?

Many investors assume that a lower NAV means a cheaper or better investment, but this is a myth. NAV simply reflects the per-unit value and does not indicate performance. What NAV tells you:

• The current value of your investment.
• How the fund’s holdings are performing on a day-to-day basis.

What NAV does not tell you:

• Whether the fund is “expensive” or “cheap.”
• The future returns of the fund.

It’s better to evaluate funds based on returns history, risk level, fund manager performance, and expense ratio, alongside NAV.

Should you choose a fund based on NAV?

The short answer is no. Two funds may have very different NAVs but still deliver similar returns. What matters more is the percentage growth of the fund, not the starting NAV. For example:

• Fund A with NAV ₹20 grows to ₹24 → 20% growth.
• Fund B with NAV ₹200 grows to ₹240 → 20% growth.

Both funds delivered the same return, regardless of NAV value.

Conclusion

NAV may look like a simple figure on your fund statement, but it plays a powerful role in shaping your investment decisions. While it doesn’t reveal growth on its own, it serves as the starting point for measuring performance and comparing funds. For investors, understanding NAV is not just about knowing the “price”; it’s about making smarter, more informed choices on the road to wealth creation.

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