NAV (Net Asset Value) in Mutual Funds: The Complete Guide

Introduction

NAV (Net Asset Value) is the fundamental metric that determines the price of mutual fund units and reflects the fund’s underlying value. Whether you’re investing through SIP or lump sum, understanding NAV is crucial for making informed investment decisions. This comprehensive guide explains NAV’s meaning, the calculation formula, how charges affect it, and why it matters for your mutual fund account.

What is NAV in Mutual Funds?

NAV represents the per-unit market value of a mutual fund’s assets minus its liabilities.

Key Characteristics

• Price per unit of the mutual fund
• Calculated daily after market closes
• Changes with market movements
• Different for each scheme (even within same AMC)

NAV vs Stock Price

Factor	NAV	Stock Price
Determination	Calculated	Market-driven
Frequency	End-of-day	Real-time
Volatility	Less volatile	More volatile
Transparency	Based on assets	Based on demand

How is NAV Calculated?

The NAV formula is standardized across all mutual funds in India.

NAV Formula

NAV = (Total Assets – Total Liabilities) / Total Outstanding Units

Components Explained

1. Total Assets:
   • Market value of all securities
   • Cash & cash equivalents
   • Accrued income (dividends/interest)
2. Total Liabilities:
   • Management fees
   • Operating expenses
   • Other payables
3. Outstanding Units:
   • Total units held by all investors
   • Changes daily with purchases/redemptions

Example Calculation

If a fund has:

• Assets: ₹100 crores
• Liabilities: ₹5 crores
• Outstanding units: 5 crore

Then:

NAV = (100 – 5) / 5 = ₹19 per unit

When is NAV Calculated?

NAV follows a strict calculation schedule:

Timing

• Equity Funds: 4 PM cutoff (after market closes)
• Debt Funds: 3 PM cutoff
• International Funds: Next day (timezone difference)

Cut-off Times for Investments

Application Time	NAV Applicable
Before cutoff	Same day NAV
After cutoff	Next business day NAV

NAV and SIP Investments

SIP investors encounter NAV differently than lump-sum investors.

SIP NAV Dynamics

• Each SIP installment gets units at that day’s NAV
• Benefit from Rupee Cost Averaging
• Long-term SIPs smooth out NAV volatility

Example SIP Scenario

Month	SIP Amount	NAV	Units Allotted
Jan	₹5,000	₹20	250
Feb	₹5,000	₹25	200
Mar	₹5,000	₹18	277.78
Total	₹15,000	Varies	727.78 units

Charges That Affect NAV

Various fees impact a fund’s NAV calculation.

Key Charges

1. Expense Ratio (annual % deducted daily)
2. Exit Load (if redeemed early)
3. Transaction Costs (brokerage, STT etc.)
4. Management Fees (for fund managers)

How Charges Reduce NAV

• Expense ratio deducted daily from assets
• Exit load deducted during redemption
• All charges lower the final NAV

NAV and Account Statements

Your mutual fund account reflects NAV in multiple ways.

Statement Components

• Purchase NAV: When you bought units
• Current NAV: Latest value
• Total Value: Units × Current NAV

Tracking NAV Growth

1. Check daily NAV on AMC website
2. Use portfolio trackers (CAMS, Karvy)
3. Review monthly account statements
4. Calculate XIRR for personal returns

Common NAV Misconceptions

Investors often misunderstand NAV’s role.

Myths vs Reality

Myth	Reality
Lower NAV = Better fund	NAV doesn’t indicate quality
NAV determines returns	Returns depend on underlying assets
High NAV means expensive	Absolute NAV value doesn’t matter

Important Truths 

• ₹10 NAV ≠ better than ₹100 NAV
• What matters is percentage growth
• Focus on portfolio composition, not just NAV

NAV in Direct vs Regular Plans

Direct plans always have higher NAV than regular plans.

Why the Difference?

• Regular plans include distributor commissions
• Direct plans have lower expense ratios
• Same portfolio but different NAVs

Example Comparison

Plan	Expense Ratio	NAV After 1 Year
Regular	2%	₹21.50
Direct	1%	₹21.80

Final Thoughts

Understanding NAV helps investors:

✅ Track mutual fund performance accurately
✅ Compare funds properly
✅ Time investments better
✅ Calculate actual returns