Introduction

If you have ever checked a mutual fund's details, you must have come across the term NAV. Many investors believe that a mutual fund with a lower NAV is cheaper and therefore better. However, this is one of the most common misconceptions in mutual fund investing.

Understanding NAV meaning is important because it helps you know how mutual fund units are priced and how your investment value is calculated.

In this guide, we will explain what is NAV in mutual funds, how NAV calculation works, and whether NAV should influence your investment decisions.

What is NAV in Mutual Funds?

NAV (Net Asset Value) is the per-unit value of a mutual fund.

Simply put, NAV represents the price at which you buy or sell units of a mutual fund.

When you invest in a mutual fund, you receive units based on the fund's NAV. Similarly, when you redeem your investment, the redemption value is calculated using the current NAV.

Simple Example

Suppose you invest ₹10,000 in a mutual fund with a NAV of ₹50.

Number of units allotted:

₹10,000 ÷ ₹50 = 200 units

So, you will receive 200 units of the mutual fund.

NAV Meaning in Simple Words

Think of NAV like the share price of a mutual fund.

Just as a stock has a market price, a mutual fund has a NAV that indicates the value of one unit of the fund.

However, unlike stocks, mutual fund NAV is calculated based on the value of the assets held by the fund.

How is NAV Calculated?

NAV is calculated using a simple formula:

NAV=Total Assets−Total LiabilitiesTotal Outstanding UnitsNAV=\frac{Total\ Assets-Total\ Liabilities}{Total\ Outstanding\ Units}NAV=Total Outstanding UnitsTotal Assets−Total Liabilities​

Components of NAV Calculation

Total Assets

These include:

• Stocks held by the fund
• Bonds and debt securities
• Cash and cash equivalents
• Accrued income

Total Liabilities

These include:

• Fund management expenses
• Operational costs
• Other outstanding obligations

Total Outstanding Units

The total number of units held by all investors in the mutual fund.

Example of NAV Calculation

Let's assume a mutual fund has:

• Total Assets = ₹500 Crore
• Total Liabilities = ₹20 Crore
• Outstanding Units = 24 Crore

NAV = (₹500 Crore − ₹20 Crore) ÷ 24 Crore

NAV = ₹20

This means each unit of the mutual fund is worth ₹20.

Why Does NAV Change Every Day?

The NAV of a mutual fund changes daily because the value of the underlying investments changes.

For example:

• If stock prices rise, NAV generally increases.
• If stock prices fall, NAV generally decreases.
• Interest income and dividends can also affect NAV.

In India, mutual fund companies calculate and publish NAV after the market closes each business day.

Does a Lower NAV Mean a Better Mutual Fund?

The simple answer is No.

Many beginners think a fund with a NAV of ₹20 is cheaper than a fund with a NAV of ₹200.

This is incorrect.

Example

Fund A:

• NAV = ₹20
• Investment = ₹10,000
• Units Received = 500

Fund B:

• NAV = ₹200
• Investment = ₹10,000
• Units Received = 50

In both cases, your investment value remains ₹10,000.

The NAV only determines the number of units you receive. It does not indicate whether a fund is expensive or cheap.

What Matters More Than NAV?

Instead of focusing on NAV, investors should evaluate:

Fund Performance

Check how the fund has performed over different time periods.

Fund Manager's Track Record

An experienced fund manager can significantly impact long-term returns.

Expense Ratio

Lower expenses can help improve overall returns.

Investment Objective

Choose a fund that matches your financial goals and risk profile.

Portfolio Quality

Understand where the fund invests and whether it aligns with your investment strategy.

NAV in SIP Investments

If you invest through a SIP (Systematic Investment Plan), NAV plays an important role.

When NAV is lower, your SIP buys more units.

When NAV is higher, your SIP buys fewer units.

This process supports rupee cost averaging, which helps reduce the impact of market volatility over time.

Difference Between NAV and Share Price

Common Myths About NAV

Myth 1: Lower NAV Means Higher Returns

False. Returns depend on fund performance, not NAV.

Myth 2: High NAV Funds Are Expensive

False. A high NAV simply means the fund's value has grown over time.

Myth 3: NAV Predicts Future Performance

False. Future returns depend on market performance and fund management.

FAQs

What is NAV in mutual funds?

NAV (Net Asset Value) is the per-unit value of a mutual fund and represents the price at which investors buy or redeem fund units.

How is NAV calculated?

NAV is calculated by subtracting total liabilities from total assets and dividing the result by the total number of outstanding units.

Is a lower NAV better?

No. A lower NAV does not mean a fund is better or cheaper. Fund performance and investment strategy matter more.

Does NAV change daily?

Yes. NAV is updated every business day based on the value of the mutual fund's underlying investments.

Should I compare mutual funds based on NAV?

No. Investors should compare mutual funds based on returns, risk, expense ratio, and investment objectives rather than NAV.

Conclusion

Understanding NAV meaning is essential for every mutual fund investor. NAV helps determine the value of your mutual fund units, but it should never be the primary factor when selecting a fund.

Instead of chasing funds with lower NAVs, focus on your financial goals, fund performance, risk profile, and long-term wealth creation strategy.

At WealthifyMe, we believe that informed investing leads to better financial decisions. Whether you're starting your first SIP or building a diversified investment portfolio, understanding concepts like NAV can help you invest with greater confidence and clarity.