What is NAV?
NAV (Net Asset Value) is the per-unit price of a mutual fund. Just as a stock has a market price, a mutual fund has NAV. It is calculated at the end of every business day by dividing the total value of the fund's portfolio (minus liabilities) by the total number of outstanding units.
Formula: NAV = (Total Assets of Fund − Liabilities) ÷ Total Number of Units
AMFI (Association of Mutual Funds in India) publishes NAVs of all mutual fund schemes at the end of each trading day, after 10 PM.
A Common Misconception: Higher NAV ≠ Expensive
This is the most dangerous myth in mutual fund investing. Many beginners avoid funds with high NAVs (₹200, ₹500, ₹2,000) thinking they're expensive, and prefer funds with low NAVs (₹10 in a new NFO) thinking they're cheap — and get more units for the same money.
This is completely wrong. Here's why: the number of units you hold is irrelevant. What matters is the total VALUE of your investment.
Example: You invest ₹10,000:
- Fund A: NAV ₹100 → you get 100 units
- Fund B: NAV ₹10 → you get 1,000 units
Both investments are worth ₹10,000. If both funds perform equally and NAVs double, Fund A reaches ₹200/unit (100 units × ₹200 = ₹20,000) and Fund B reaches ₹20/unit (1,000 units × ₹20 = ₹20,000). Your returns are identical. The number of units is irrelevant — only the NAV growth percentage matters.
How NAV Changes
NAV changes every business day based on the market value of all the securities (stocks, bonds) held in the fund's portfolio. If the fund holds stocks that rose 1% today, the NAV rises approximately 1%. If they fell 2%, NAV falls approximately 2% (minus the daily expense ratio accrual).
On weekends and market holidays, NAV does not change because markets are closed and there are no price updates for the underlying securities.
NAV vs Stock Price: Key Differences
- Stocks trade at live market prices throughout the day; mutual fund NAV is calculated once at day-end
- You cannot buy or sell mutual funds at live prices during market hours (except ETFs)
- For equity mutual funds, if you place a redemption order before 3 PM, you get that day's NAV. After 3 PM, you get the next day's NAV
- Stocks can be overvalued or undervalued relative to their intrinsic value; NAV is a direct mathematical calculation of the fund's actual portfolio value — it is always "fair value"
Growth NAV vs IDCW NAV
The same mutual fund scheme has two NAVs: Growth option and IDCW (formerly Dividend) option. The Growth NAV compounds higher over time because no money leaves the fund (all gains are reinvested). The IDCW NAV is lower because the fund periodically distributes some of the accumulated gains as cash payouts, reducing the NAV by the amount distributed.
For long-term investors, always choose the Growth option. The IDCW option is less tax-efficient (payouts are taxable at slab rate) and creates no additional wealth — it just gives you your own returns back as cash.
Practical Takeaway
Stop looking at NAV as a price indicator. Focus instead on: the fund's category, its expense ratio (direct plan), its historical performance vs benchmark over 3, 5, and 10 years, and the fund manager's track record. These factors determine your actual returns — the NAV per unit is just a number that reflects past growth.
Finance Disclaimer
This content is for educational purposes only and should not be considered financial advice. Please consult a certified financial advisor before making investment decisions.