As a new mutual fund investor, you probably would have noticed the NAV mentioned near mutual fund schemes. Ever wondered what it is and why it matters in choosing the right fund? Here, in this guide, we explain how to interpret the NAV value as a mutual fund investor. 

What is NAV (Net Asset Value)? 

Just like shares have a market value, mutual funds have a net asset value. Investors purchase units of the mutual fund from the fund house at the NAV value. Similarly, when investors wish to redeem their mutual fund units, they sell it back to the fund house for the NAV value. 

To calculate the NAV of a mutual fund, the first step is to add all the assets/shares in the portfolio. This value is then subtracted from the liabilities. This value is then divided by the total number of mutual fund units to arrive at the NAV.

Simply put, the Net Asset Value of a mutual fund is the current market value of each unit of a mutual fund. 

The fund house can calculate the NAV, or they can hire an external accounting firm to compute the NAV. NAV is not calculated during market hours, as the prices of the shares in the mutual fund portfolio fluctuate. Generally, it is calculated at the end of the market day.

How is NAV calculated? 

The formula for calculating the NAV of a mutual fund,

NAV [Net Asset Value] = Assets – (Expenses + Liabilities) / No. of outstanding units

The fund house calculates the sum of all outstanding liabilities and expenses and deducts it from the value of the overall assets. The assets of a mutual fund scheme are divided into liquid cash and securities. Securities include equities, bonds, debentures and commercial papers. The dividends earned by the fund along with interest accrued considered part of the scheme's assets. The expenses of the mutual fund include the daily expenses to manage the fund.

This value is then divided by the total number of mutual fund units issued so far, to arrive at the NAV value. 

Now, let’s illustrate NAV with a few examples. Let’s assume that the market value of a particular mutual fund is Rs. 100 lakhs and the mutual fund scheme has issued 10 lakh units. Now, the NAV of each unit is, NAV = 100 lakhs / 10 lakh = Rs. 10 per unit. 

Now, assume that the NAV of Mutual Fund A is Rs. 500. Then, if you wish to purchase one unit of the fund, you have to pay Rs. 500. Similarly, two units would cost you Rs. 1000 and so on. If you invest Rs. 5000 in this mutual fund, then you would acquire ten units of that fund.

However, note that NAV changes every day based on market values of the shares held by the mutual fund scheme. This is why all mutual fund portfolios update their NAV values at the end of every market day. Generally, all mutual fund houses update their mutual fund portfolios at 3.30 pm every day, when the stock market closes.

Additional Reading: How To Choose The Best Mutual Fund?

Mutual Fund NAV Faqs

To help you better understand the relevance of mutual fund NAV, let's take a detailed look at a few common queries.

  1. Should an investor be worried about the daily changes in the NAV value? 

No. As an investor, you don’t have to get stressed over the daily changes in the NAV value of your mutual fund. The NAV value of a fund is likely to dip or increase, based on market fluctuations. However, this needn’t worry you as an investor. 

Instead of looking at NAV fluctuations, investors should monitor the fund’s performance over the years, to evaluate whether they should continue investing in it or not. 

  1. Should I choose a mutual fund with a high NAV or low NAV? 

Let’s answer this question with an example. Let’s state that there are two mutual fund scheme A and B. the NAV of scheme A is Rs. 10, whereas the NAV of scheme B is Rs. 100. You plan to invest Rs. 1,00,000 in each of these mutual fund schemes. Your investment would get you 10,000 units of scheme A, whereas it would fetch you only 1000 units of Scheme B. 

Let’s assume that both these schemes generate a return of 10%. Now, the NAV of scheme A increases to Rs. 11 and the NAV of scheme B are Rs. 110. The value of your initial investment increases to Rs. 1,10,000 in both the schemes. 

As you can see, the NAV of the scheme doesn’t matter when it comes to the returns generated. The only difference is in the number of units held in the investor’s portfolio. 

  1. Where can I find the NAV of a mutual fund? 

As per SEBI rules, all funds must disclose the NAVs daily or weekly, based on the fund type. To find the NAV of a particular mutual fund, visit the website of the mutual fund house and look up the NAV of the preferred fund. Most mutual fund houses update the NAV value at the end of the trading day after the markets are closed.


How relevant is NAV to investors while choosing mutual funds? 

Very often, new investors make the mistake of equating mutual fund NAV values to the performance of the fund. Remember, that NAV is just the total value of the mutual fund scheme minus expenses and liabilities. A higher NAV is an indicator that the mutual fund has been around for a long time and has done well in the past. It doesn't reflect the prospects of the scheme.

So, instead of comparing mutual fund schemes based on NAVs, investors should focus on other factors like – the returns generated, the scheme’s performance and more, while investing in mutual fund schemes. 

To summarize it in a nutshell, a fund’s NAV is useful in helping investors track the performance of the fund daily. However, factors like historical performance, risk levels, current cost and other parameters help investors decide on the right mutual fund to invest in.