When opting for a mutual fund, investors often stress on looking at its past performance. They forget to ask the crucial question – how much is the mutual fund worth? In this article, we will cover everything about NAV.

  1. What is NAV?
  2. How is NAV relevant to investors?
  3. What is the difference between NAV & Market Price?
  4. How is NAV calculated?
  5. How does investment-timing affect NAV
  6. What is the role of NAV in fund performance?


1. What is NAV?

Net Asset Value (NAV) is the market value of a mutual fund unit. The overall cost of a mutual fund depends on this market value per fund unit. If you add up the market value of all the shares in the fund and divide it by the number of total mutual fund units, the resulting figure is referred to as NAV.

NAV, in simple terms, is the price per unit of the fund. Just like shares have a share price, mutual funds have NAV. Generally, mutual fund units begin with a unit-cost of ₹10 and it rises as the fund’s assets under the management grow. Hence, a well-established fund will have a higher net asset value than a newer one.

NAV of a fund is calculated by obtaining the difference between total assets and liabilities and dividing it by the total number of units. Here’s the formula to obtain NAV of a fund:

NAV = (Total Assets - Total Liabilities) / Number of Units


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2. How is NAV relevant to investors?

It is not wise to base your investment decision on the NAV of a mutual fund scheme. NAV does not reflect the future prospects of the mutual fund scheme. It is just the total value of the mutual fund scheme investments minus the liabilities and expenses.

Therefore, a higher NAV means the scheme investments have prospered really well or the scheme has been around for a long period. The investors should focus on the scheme’s performance and the returns generated while investing in a mutual fund scheme.

3. What is the difference between NAV & Market Price?

Investors tend to assume that the net asset value and the market price of an equity share are the same, which is not true. They might be selling or buying the mutual fund units at NAV but it shouldn’t be confused with the market price of a unit.

Broadly, NAV for mutual funds is what share price is for stocks. You buy and sell the units of a mutual fund scheme at the prevailing NAV. The share price of a stock fluctuates almost every minute, while the NAV of a fund scheme is calculated at the end of each business day.

Every mutual fund scheme is mandated by the Securities and Exchange Board of India (SEBI) to compute and disclose the NAV after the markets close on business days.

Net Asset Value

4. How is NAV calculated?

a. General Net Asset Value Calculation

If a mutual fund has a NAV of ₹500, then that is how much you will have to pay for one unit of that mutual fund. Conversely, if you invest ₹5,000 in a mutual fund with a net asset value of ₹500, then they will allow you 10 units of that fund.

The cost of an equity fund is the total cost of all the shares it has. These price fluctuations are subject to the changes as per the share market and this is why mutual fund portfolio comes with a daily value.

b. Daily NAV Calculation

All mutual companies estimate their portfolio worth once the stock market closes at 3:30 p.m., each day. The market opens again the next day with the previous day’s closing share prices. The fund house deducts all the outstanding liabilities and expenses accordingly to calculate net asset value (NAV) of the day using the given formula.

Net Asset Value = [Assets – (Liabilities + Expenses)] / Number of outstanding units

Assets of a mutual fund scheme are divided into securities and liquid cash. Securities include both the equity, debentures, bonds and commercial papers. Interest accrued and dividends are also part of the assets.

The cash balance in the bank account is added and the money payable to others are subtracted to determine the net asset value of the fund. The fund manager also deducts the daily expenses to manage a fund.

You get the cost per unit on a daily basis when you divide total asset value by the number of mutual fund units issued so far.

5. How does investment-timing affect NAV

A mutual fund company releases its latest NAV on all working days, due to which it is strictly time-bound. This is why mutual funds keep a deadline for daily investments, which is 2 p.m. for liquid funds or 3 p.m. for equity or debt funds. You can be allotted the NAV of the same day, the previous day or the next day according to the time you submit your application and funds.

If you invest before 2 p.m. in a liquid fund, you will be allotted units at the NAV of the previous day. This will happen only if you also transfer the money before the deadline. If you miss the deadline and submit your application and money after 2 p.m., you will be allotted units at the NAV of the same day.

If you submit your application before 2 p.m. but fail to transfer the money before the deadline, you will not be eligible for the previous day’s NAV.

In the case of equity and other debt funds, the deadline is 3 p.m. If you submit the application before 3 p.m., you will get the unit on the basis of the same day’s NAV. Submitting the application after the deadline will get you the next day’s NAV. Unlike liquid funds, it is not necessary to transfer the funds before such a timeline.

6. Role of NAV in fund performance

A lot of investors think net asset value is similar to a stock price. This causes them to believe that a fund with a lower net asset value is cheaper and hence, a better investment. In truth, it is not an indicator of mutual fund performance. A lower value alone does not make a fund a better investment or vice versa. Hence, it should not be the only determining factor to choose a mutual fund.

Illustration - Role of NAV in fund performance

Let us look at two funds we have picked at random. On 21 September 2017, the NAV of Frontline Equity was ₹215.77 and that of Focused Bluechip Equity was ₹38.53. There is a stark difference in the net asset value of both funds, but as the table below shows, the performance of both funds are comparable.

Fund name NAV (₹) Launch date AUM (₹) 1-year returns (%) 3-year returns (%) 5-year returns (%)
Birla Sun Life Frontline Equity 215.77 30 August 2002 18,948 crore 17.71 13.35 19.33
ICICI Pru Focused Bluechip Equity 38.53 23 May 2008 14,337 crore 18.37 11.94 17.63

Basically, the NAV should not have bearing on any of your fund selection. It basically shows how the underlying assets have performed. In the above table, the NAV of ICICI Prudential fund is relatively lesser than the Birla Sun Life fund. However, it is not an appropriate indicator of fund performance. You need to look for returns perspective keeping your investment horizon in mind and make an informed decision.

In short, a fund’s NAV is more useful in understanding how the fund performs on an everyday basis. Always look at the fund’s historical performance and current cost among other parameters before investing.


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