NAV (Net Asset Value) - What Is NAV in Mutual Funds? Formulae, and how NAV is Calculated?

When picking mutual funds, many investors zoom in on past performance and overlook a key question Will this fund do well in the future? One term that often pops up in these discussions is NAV, which stands for Net Asset Value. In this article, we’ll unpack everything you need about NAV and why it’s not the whole story when investing.

What is NAV?

NAV stands for Net Asset Value, which shows the market value of the mutual fund's holdings expressed per unit. It’s how funds show their worth, and more practically, it’s the price you pay to buy into a mutual fund or cash out when you redeem.

Think of NAV as the fund’s scorecard on any given day. To calculate it, take the total value of the fund’s assets (stocks, bonds, cash, etc.), subtract its liabilities (like fees or expenses), and divide by the number of units investors hold. Most mutual funds start with an NAV of ₹10 during their New Fund Offer (NFO), and it grows as the fund’s assets increase over time. But here’s the catch a low NAV doesn’t mean a fund is a steal, nor does a high NAV mean it’s overpriced.

How Is NAV Calculated for Mutual Funds?

Daily, the AMC tallies the market value of all securities and cash, subtracts liabilities and expenses, and divides by the total units outstanding.

NAV calculation follows a standardised process:

1. Total assets, such as the market value of securities, cash, and dividends, are tallied.
2. Liabilities like fund expenses and accrued fees are subtracted.

The result is divided by the number of units outstanding.

The formula for NAV is:
 NAV = (Total Assets – Total Liabilities) / Total Number of Outstanding Units

For Example, if a fund’s assets are ₹5,000 crores, liabilities are ₹50 crores, and outstanding units are 100 crores, the NAV is ₹49.5 per unit.

Let’s break it down with another example for understanding credit of units in respect to NAV. 

Say you invest ₹5,000 in a fund with an NAV of ₹500. You’d get 10 units (₹5,000 ÷ ₹500).

Imagine you splitting ₹1 lakh each between two funds:

• Fund A has an NAV of ₹10 → You get 10,000 units (₹1,00,000 ÷ ₹10).
• Fund B has an NAV of ₹20 → You get 5,000 units (₹1,00,000 ÷ ₹20).

Assets include stocks, bonds, and cash, while liabilities cover fund management costs. It’s a straightforward snapshot, updated every trading day.

How is NAV relevant to investors?

NAV matters because it’s the price tag for buying or selling mutual fund units. But don’t get too hung up on it. Choosing a fund just because its NAV is low is like buying a cheap stock without checking the company’s health. NAV tells you what the present worth of the unit is. Your investment decisions should hinge on your goals, risk comfort zone, and how long you plan to stay invested, not just a number like NAV.

What is the difference between NAV & Market Price?

NAV isn’t like a stock’s current market price, which bounces around all day based on what people are willing to pay. For mutual funds, NAV is calculated once daily, after markets close, by the fund house (AMC). It will be calculated on the closing prices of the fund’s holdings value.

On the other hand, stock trade is live on exchanges and is driven by supply, demand, and analyst buzz. Mutual fund units? You buy or sell them at NAV, not at fluctuating market prices. That’s why NAV feels more steady.

How does investment timing affect NAV?

Timing can nudge which NAV you lock in, thanks to rules set by SEBI (as of early 2021, still in play in 2025). For most mutual funds:

Buying: You get that day's NAV if your money hits the AMC’s account before 3 PM.

Selling: Request redemption by 3 PM, and you’re settled at that day’s NAV; after 3 PM, it’s the next day’s.

Liquid/Overnight Funds: Tighter cut-offs apply at 1:30 PM for buying and 3 PM for selling.

For instance, if you initiated a transaction of ₹75,000 on March 18, 2025, and it’s completed by 3 PM, you get that day’s NAV. If it’s completed at 3:01 PM, you’re bumped to March 19’s NAV. Market swings between days can tweak your starting point.

Role of NAV in fund performance

Some investors treat NAV like a stock price, thinking a lower number means a better deal. Not quite. NAV doesn’t predict performance; it just mirrors how the fund’s assets have performed. A fund with an NAV of ₹200 might have grown a lot, while one at ₹20 might be stagnant, but neither tells you what’s next.

Take two funds from years back, one at ₹215 and another at ₹38. Their NAVs were miles apart, yet their returns were neck-and-neck. The lesson? NAV tracks daily changes, but dig into historical returns, costs, and your own timeline for picking to be a winner. 

conclusion

In the end, while NAV serves as a useful snapshot of a mutual fund’s current value, it’s not the crystal ball investors often hope for when predicting future success. A fund’s NAV whether low or high merely reflects its past journey, not its potential to grow. Smart investing means looking beyond this single number to consider your financial goals, risk appetite, and the fund’s historical performance and costs. By focusing on these broader factors rather than chasing a bargain NAV, you can make choices that truly align with your long-term vision.