What is NAV in mutual funds?
- Mar 22
- 7 min read
Updated: Jul 12
Net Asset Value (NAV) is the per-unit market value of a mutual fund’s portfolio. Think of a mutual fund as a large pot of money pooled from thousands of investors, professionally deployed into stocks, bonds, or other securities. The NAV is simply the value of one unit of that pot at the end of each trading day.
The calculation is straightforward. The fund takes the total market value of everything it holds, subtracts any liabilities (management fees payable, operational costs), and divides by the total number of units currently outstanding.
Here is the NAV formula:
NAV = (Total Assets - Total Liabilities) / Total Outstanding Units
SEBI mandates that all AMCs publish the NAV of every scheme on their website and on AMFI’s website (www.equityresearchindia.com) by 11 PM on every business day. The NAV you act on today reflects yesterday’s market closing prices.
Let’s build a hypothetical equity fund from scratch and calculate its NAV, then see how a market move changes it the next day.
Day 1: Striking the opening NAV
The fund’s portfolio on Day 1:
Equity holdings (market value): Rs 980 crore
Cash and money market instruments: Rs 20 crore
Accrued dividend receivable: Rs 2 crore
Total Assets: Rs 1,002 crore
Management fees payable: Rs 1.5 crore
Other liabilities: Rs 0.5 crore
Total Liabilities: Rs 2 crore
Net Assets: Rs 1,002 crore - Rs 2 crore = Rs 1,000 crore
Outstanding Units: 10 crore
NAV: Rs 1,000 crore / 10 crore = Rs 100 per unit
Day 2: A 3% market rally
Equity holdings appreciate by 3%: Rs 980 crore x 1.03 = Rs 1,009.4 crore. Cash and liabilities are unchanged.
NAV = Rs 1,029.4 crore / 10 crore = Rs 102.94 per unit
The NAV moved from Rs 100 to Rs 102.94, a gain of Rs 2.94 per unit, closely mirroring the 3% rise in equity holdings. The NAV is a live reflection of what the fund’s underlying portfolio is actually worth.
Knowing a single NAV in isolation tells you nothing useful. The value lies in watching how it changes over time relative to the price at which you invested.
Return (%) = [(NAV at exit - NAV at entry) / NAV at entry] x 100
Priya invests Rs 2,00,000 in a large-cap fund when the NAV is Rs 85. She is allotted 2,352.94 units. Three years later the NAV stands at Rs 140.
Current value = 2,352.94 units x Rs 140 = Rs 3,29,411.76
Absolute return = (140 - 85) / 85 x 100 = 64.7%
CAGR = (140/85)^(1/3) - 1 = approximately 18.0% per year
For a Systematic Investment Plan (SIP), you buy units at many different NAVs over time. Since each SIP instalment acquires units at that day’s NAV, the weighted average cost of your investment is what determines your real return. This is where XIRR becomes the right metric, not simple CAGR.
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 when the NAV dipped, the average acquisition cost dropped, and the overall return improved. This is rupee cost averaging in action.
The type of securities a fund holds directly determines how volatile its NAV is and how quickly it moves.
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 |
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 |
High (tracks index) | NAV mirrors the underlying index closely; tracking error is the key metric to watch | |
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 you submit the transaction.
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 |
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 Rs 2 lakh in debt and liquid funds, the applicable NAV is the one on the date the funds are actually credited to the fund house’s bank account, not the date of order placement. This prevents arbitrage and ensures fairness for all unit holders.
The most common mistake made by new investors is treating NAV like a stock price and concluding that a lower NAV means a fund is cheap or a higher NAV means it is expensive.
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The myth is that a fund with NAV Rs 15 is cheaper than a fund with NAV Rs 500. The reality is that NAV level reflects only the fund’s history, how long it has existed and how much it has compounded. It says nothing about future return potential.
Here is an example:
Fund A: NAV Rs 20. Rs 1,00,000 invested. 5,000 units acquired.
Fund B: NAV Rs 200. Rs 1,00,000 invested. 500 units acquired.
Both funds hold identical portfolios. The market rises 25%.
Fund A: Rs 20 x 1.25 = Rs 25. 5,000 x Rs 25 = Rs 1,25,000.
Fund B: Rs 200 x 1.25 = Rs 250. 500 x Rs 250 = Rs 1,25,000.
Both funds give an identical outcome. NAV level is entirely irrelevant to future returns. What should determine your fund choice is the quality of the portfolio, the consistency of the fund manager’s approach, the expense ratio, and how well the fund has performed relative to its benchmark across full market cycles.
Many investors are surprised to find that receiving a dividend from a mutual fund does not actually increase their wealth.
Dividend payouts and NAV: the accounting reality
Before dividend: NAV = Rs 35. Units held = 1,000. Total value = Rs 35,000.
Fund declares: Rs 3 per unit dividend.
After dividend: NAV falls to Rs 32 per unit. Dividend in your bank account = Rs 3,000. Portfolio value = 1,000 x Rs 32 = Rs 32,000. Total wealth = Rs 32,000 + Rs 3,000 = Rs 35,000 (unchanged.).
This accounting reality is precisely why SEBI in 2021 renamed the ‘Dividend’ option in mutual funds to ‘IDCW’ (Income Distribution cum Capital Withdrawal). The name change was meant to make it explicit that the fund is distributing part of your own capital back to you, not generating a bonus.
The expense ratio is the annual fee an AMC charges to manage the fund. It is expressed as a percentage of the fund’s AUM and is deducted daily from the NAV before it is published. This means you never see it as a line-item deduction, but it is silently reducing your returns every single day.
If a fund carries an expense ratio of 1.5% per year, it deducts roughly 0.00411% per day from the fund’s assets before calculating the NAV. Over time, this daily haircut compounds into a significant drag on returns.
Plan type | Typical expense ratio | 10-Year value of ₹10L (12% gross return) |
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. A fund charging 2% annually hands you meaningfully less wealth than one charging 0.5%, even if both hold the exact same stocks. This is the core argument for direct plans over regular plans.
To ground NAV in concrete terms, the table below shows how a broadly tracked large-cap index fund’s NAV has moved over several years, reflecting real market events.
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 the lows locked in a permanent loss relative to staying invested. The NAV recovered and exceeded its pre-COVID level within a year.
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Disclaimer
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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