What is NAV in mutual funds?
- Mar 22
- 7 min read
Updated: Apr 13
Net Asset Value (NAV) is the per-unit market value of a mutual fund's portfolio. Think of it as the fund's share price except, unlike a stock price that fluctuates throughout the trading day, NAV is calculated only once every day and that is after the stock market closes each business day.
The calculation itself is straightforward. The fund takes the total market value of everything it holds such as equities, bonds, cash, money-market instruments, accrued dividends, and interest receivable and subtracts its total liabilities, i.e, management fees, payable redemptions, and operating costs. Whatever remains is the net assets. Divide that by the total number of outstanding units, and you have the NAV for that day.
Here is the NAV formula:
NAV = (Total Assets - Total Liabilities) / Total Outstanding Units
SEBI (Securities and Exchange Board of India) mandates that all AMCs publish the NAV of every scheme by 11:00 PM on each business day. The NAV is freely available on AMC website and our website www.equityresearchindia.com
Let us build a hypothetical equity fund from scratch and calculate its NAV, then see how a market movement changes it the following day.
Day 1: Striking the opening NAV
Equity holdings (market value) ₹980 crore
Cash & money market instruments ₹20 crore
Accrued dividend receivable ₹2 crore
────────────────────────────────────────────────
Total Assets ₹1,002 crore
Management fees payable ₹1.5 crore
Other liabilities ₹0.5 crore
─────────────────────────────────────────────────
Total Liabilities ₹2 crore
Net Assets = ₹1,002 – ₹2 ₹1,000 crore
Outstanding Units 10 crore
NAV = ₹1,000 crore ÷ 10 crore = ₹100 per unit
Day 2: A 3% market rally
Equity holdings appreciate by 3%: ₹980 cr × 1.03 = ₹1,009.4 crore. Cash and liabilities are unchanged. Net assets become ₹1,029.4 crore. With the same 10 crore units outstanding:
NAV = ₹1,029.4 crore ÷ 10 crore = ₹102.94 per unit
The NAV moved from ₹100 to ₹102.94, a gain of ₹2.94 per unit, closely mirroring the 3% rise in the underlying equity portfolio. This is the transparency of NAV as it is a daily mark-to-market of your precise share of the fund's assets.
Knowing a single NAV in isolation tells you nothing useful. The value lies in watching how it changes between the day you invest and the day you exit.
Here is how to calculate NAV returns formula:
Return (%) = [(NAV_exit - NAV_entry) / NAV_entry] x 100
Priya invests ₹2,00,000 in a large-cap fund when the NAV is ₹85. She is allotted 2,352.94 units (₹2,00,000 ÷ ₹85). Three years later the NAV has risen to ₹140.
Current value = 2,352.94 units × ₹140 = ₹3,29,411.76
Absolute return = (140 – 85) / 85 × 100 = 64.7%
CAGR = (140/85)^(1/3) – 1 ≈ 18.0% per year
For a Systematic Investment Plan (SIP), you buy units at many different NAVs over time. Simple percentage return is meaningless here; XIRR is the correct measure. The table below shows six months of SIP purchases:
Month & purchase NAV | SIP amount | Units purchased |
Jan 2023 - ₹50 | ₹10,000 | 200.00 |
Feb 2023 - ₹48 | ₹10,000 | 208.33 |
Mar 2023 - ₹53 | ₹10,000 | 188.68 |
Apr 2023 - ₹55 | ₹10,000 | 181.82 |
May 2023 - ₹52 | ₹10,000 | 192.31 |
Jun 2023 - ₹58 | ₹10,000 | 172.41 |
Total invested | ₹60,000 |
|
Total units |
| 1,143.55 |
Average cost NAV |
| ₹52.47 |
NAV after 1 year - ₹70 |
| Value = ₹80,049 |
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Because more units were purchased in February when the NAV dipped to ₹48, the average acquisition cost was pulled down to ₹52.47. This is rupee cost averaging, one of the central benefits of SIP investing, and one that only becomes visible when you track NAV history carefully.
The type of securities a fund holds directly determines how volatile its NAV is and how quickly it responds to market events.
Fund type | NAV volatility | Reason |
Equity Fund | High | NAV moves daily with stock prices; sensitive to market sentiment and earnings |
Debt / Bond Fund | Moderate | Bond prices change with interest rates and credit events; generally smoother than equity |
Liquid Fund | Very Low | Invests in instruments maturing within 91 days; NAV grows in tiny daily increments |
Hybrid Fund | Moderate to High | Mix of equity and debt; volatility sits between the two pure types |
Index Fund / ETF | High (tracks index) | NAV mirrors the underlying index closely; tracking error is the key metric to watch |
Gilt Fund | Moderate to High | Government securities are sensitive to RBI rate decisions and can surprise investors |
The NAV you receive is not necessarily the NAV of the day you place your order. It depends on when both your order instruction and the funds themselves reach the AMC.
Fund category | Cut-off time (IST) | NAV applicable |
Equity, Hybrid, ELSS | 3:00 PM | Same-day NAV if order and funds received before 3 PM; otherwise, next business day |
Liquid Fund | 1:30 PM | Previous day's NAV if funds cleared before 1:30 PM |
Overnight Fund | 1:30 PM | Same-day NAV once 1:30 PM cut-off is confirmed |
Debt / Other Funds | 3:00 PM | Same-day NAV if before cut-off; otherwise, next business day |
An important change came in February 2021. SEBI now requires that for investments above ₹2 lakh in any scheme, the actual realisation of funds, not just the order timestamp determines the applicable NAV. This closed a loophole that allowed investors to lock in a favourable NAV before large market moves. For most retail investors placing SIPs or lumpsum investments below ₹2 lakh, the cut-off time of the order placement date still governs.
The most common mistake made by new investors is treating NAV like a stock price and concluding that a lower NAV means a cheaper or more attractive fund. This reasoning is wrong, and it is worth understanding precisely why.
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The myth is that a fund with NAV ₹15 is cheaper than a fund with NAV ₹500. I should buy the lower-NAV fund — it has more room to grow. A high NAV means the fund is expensive.
The reality is that NAV level reflects only the fund's history, how long it has existed and how much the portfolio has grown since inception. A ₹15 NAV and a ₹500 NAV fund holding the exact same portfolio will deliver identical percentage returns going forward. You simply receive more units in the first case and fewer units in the second.
Here is an example:
Fund A: NAV ₹20 → ₹1,00,000 invested → 5,000 units
Fund B: NAV ₹200 → ₹1,00,000 invested → 500 units
Both funds hold identical portfolios. The market rises 25%.
Fund A: ₹20 × 1.25 = ₹25 → 5,000 × ₹25 = ₹1,25,000
Fund B: ₹200 × 1.25 = ₹250 → 500 × ₹250 = ₹1,25,000
Both funds give identical outcome. NAV level is irrelevant to future returns.
What should determine your fund choice is the quality of the portfolio, the consistency of the fund manager, the expense ratio, and the track record relative to the benchmark — never the absolute value of the NAV.
Many investors are surprised to find that receiving a dividend from a mutual fund does not actually make them wealthier. When a fund declares a dividend, the NAV drops by exactly the dividend amount per unit on the ex-dividend date. The money has simply moved from inside the fund to your bank account.
Here is an example:
Before dividend:
NAV = ₹35 | Units held = 1,000 | Total value = ₹35,000
Fund declares: ₹3 per unit dividend
After dividend:
NAV falls to ₹32 per unit
Dividend in your bank account = ₹3,000
Portfolio value = 1,000 × ₹32 = ₹32,000
Total wealth = ₹32,000 + ₹3,000 = ₹35,000 (unchanged)
This accounting reality is precisely why SEBI in 2021 renamed the 'Dividend' option in mutual funds to IDCW or Income Distribution cum Capital Withdrawal. The new name is more honest: you are receiving your own capital back, partly, not a payment from profits.
The expense ratio is the annual fee an AMC charges to manage the fund. It is expressed as a percentage of AUM per year. Crucially, it is already embedded in the daily NAV. It is not billed as a separate charge. Each day, a proportional slice of the annual expense ratio is deducted from the portfolio's total assets before NAV is struck.
If a fund carries an expense ratio of 1.5% per year, it deducts roughly 0.00411% per day. On a ₹1,000 crore portfolio, that is approximately ₹41.1 lakh removed each day before the NAV calculation runs. This is why two plans of the same fund — Direct and Regular will show different NAVs even though they hold the same securities.
Plan type | Typical expense ratio | 10-Year value of ₹10L (12% gross return) |
Direct Plan | 0.1% - 0.8% | ₹29.7 lakh - ₹30.8 lakh |
Regular Plan | 0.9% - 2.0% | ₹26.6 lakh - ₹28.4 lakh |
Difference | ~1.0% - 1.5% p.a. | ₹1.5 - ₹3+ lakh less wealth |
The compound effect of a seemingly small annual fee difference is enormous over a decade. Choosing the Direct Plan of the same fund scheme, all else being equal, can add lakhs to your final corpus, purely because the NAV compounds at a slightly higher rate every single day.
To ground NAV in concrete terms, the table below shows how a broadly tracked large-cap index fund's NAV might have evolved since inception, and what a one-time investment of ₹10,000 at the launch NAV of ₹10 would have been worth at each stage. Figures are illustrative but aligned with historical Nifty 50 TRI performance.
Year | Illustrative NAV (₹) | ₹10,000 invested at inception |
Inception - 2010 | 10.00 | ₹10,000 (1,000 units allotted) |
2012 | 13.80 | ₹13,800 |
2014 | 19.20 | ₹19,200 |
2016 | 22.50 | ₹22,500 |
2018 | 31.10 | ₹31,100 |
2020 (Covid dip) | 28.40 | ₹28,400 |
2022 | 48.70 | ₹48,700 |
2024 | 67.30 | ₹67,300 |
March 2026 | 78.50 | ₹78,500 CAGR ≈ 10.7% p.a. |
Notice the 2020 dip. An investor who panicked and redeemed at ₹28.40 locked in a loss relative to their 2018 position. Those who stayed invested watched the NAV recover and then more than double in the following six years. Time in the market, not timing the market, an old principle that the NAV history of any well-run fund tends to confirm.
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Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any financial instrument. Mutual fund investments are subject to market risks. Past performance is not indicative of future results. Returns data is sourced from AMC websites and AMFI India. Please read all Scheme Information Documents (SID) and Key Information Memoranda (KIM) carefully before investing. Consult a SEBI-registered investment advisor for personalised advice.
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