12 Reasons Why You Need to Know About Mutual Funds NAV

When investing in mutual funds, one of the most commonly used terms is NAV or Net Asset Value. NAV is misunderstood by many investors, especially lower NAV means a fund is more affordable or profitable. As a result, that typically translates into bad investment choices. Understanding NAV and it’s importance in mutual fund investing (for taking informed and strategic decisions)
Here are the 12 reasons why familiarising yourself with NAV will allow you to invest more intelligently.

What is NAV (Net Asset Value)

NAV refers to the amount per unit of a mutual fund.
NAV denotes the cost of one unit of a mutual fund. 
It is calculated as:
NAV = (Total Assets – Liabilities) / Total Units
This valuation allows investors to see how much each unit is worth before buying or redeeming.

It Sets the Price to Get In and Out

When you buy or redeem mutual fund units, the transaction is settled at the latest declared NAV. This ensures that you know exactly how much you are paying or getting per unit so that there is transparency.

NAV Updates Done Daily for Precision

On every business day, when the stock market closes, the mutual fund houses calculate and publish NAV, generally before 9 PM. This daily update works to ensure that the value is the most accurate market position of the fund possible.

NAV Validity determines the Impact of Transaction Occurrence

NAV on the same day will be applicable if your purchase or redemption request is placed before 3 PM on any business day. If it is after 3 PM, it uses the NAV of the next day. This is vital for investors who want to time their entries or exits properly.

NAV and AUM Are Not the Same

NAV is often confused with Assets Under Management (AUM) by many investors. AUM, on the other hand, is the total value of all assets that a mutual fund manages. The difference enables you to better assess fund size and efficiency.

NAV Is Not An Indicator of Performance or Profitability

This doesn’t mean that the fund is cheap or will give higher returns. Also, a high NAV does not mean that it is over-priced. Fund returns are based on the growth of the underlying portfolio, not the NAV you bought in at.

Returns Are as per percentage Gain, Not NAV value

Here’s an example:
Fund A NAV = ₹20 → Grows 10% → Becomes ₹22
Fund B NAV = ₹50 → Grows  10% → Becomes ₹55
Invest ₹100 in both, both become ₹110. Regardless of the starting NAV, the return percentage remains the same.

NAV Is Not Like a Stock Price

Stock prices are determined by demands and sentiments in the market. NAV, conversely, that is purely derived from the value of assets in net terms with no influence from popularity or speculation.

A declining NAV does not always mean a bad fund

Like stock prices, NAVs can decline in a down market. A superficial fall in NAV isn’t always an indication of bad management—it might just be a natural fluctuation in the market. There is no grind, no churn, only effort and dedication to long-term returns and consistency.

The Best Investments Can Still Come From High NAV Funds

Some investors shy away from funds whose NAV is high, believing they are “expensive”. In reality, a higher NAV may simply indicate that the fund has been performing well over the years. The unit price only matters in terms of how efficiently the fund manages its capital.

NAV Tracks the Performance of the Fund Over Time

Investors can measure how much a fund is growing over a period by watching for changes in NAV. A decline in NAV is not the only performance indicator; it gives context in terms of how stable and growing the fund is.

NAV Guides in Timing SIP and Lump Sum Investments

For Systematic Investment Plans (SIPs) or lump sum investments, having this knowledge of NAV and cut-off time rules means your money shall successfully get deployed at an appropriate instance. This aids in fair valuation, as well as tracking of returns.

Conclusion

Learning about NAV is helpful to know the per-unit value of a mutual fund and also helps in ensuring that your buy or sell transaction is done at the correct time. However, don’t overemphasise NAV when choosing a fund. A lower NAV doesn't equate to better value, and a higher NAV doesn't make a fund expensive.

NAV is simply a pricing mechanism, not a performance metric.
What really matters are the fund’s historical returns, the quality of its assets and consistency, and the extent to which it fits your financial goals. NAV awareness does lead you to make smarter decisions, but you should always see the bigger picture before investing.