Sunday, May 22, 2022

What is NAV(Net Asset Value) in Mutual Funds?

If you are a new mutual fund investor then you would like to know what is NAV in Mutual Funds.

  • NAV, or Net Asset Value, is the unit price of a mutual fund scheme.
  • Mutual funds are bought or sold on the basis of NAV.
  • In contrast to the share prices, which change continuously during the trading hours, the
  • NAV is calculated on a daily basis.
  • It is calculated at the end of the day, based on the closing price of all the securities that are related to that mutual fund scheme, after making appropriate adjustments to the total expenses.

These expenses are known as TER – Total Expense Ratio. Expenses of mutual fund schemes, including fund management; Administration, distribution expenses, etc., are charged in the proportion of the assets of the scheme and adjusted in the scheme NAV.

How is NAV calculated?

By now you have understood what is NAV. For example, after being told about its calculation, it will become more clear how NAV is calculated.

A mutual fund company (AMC, AMC), a new fund offering; Introduces a new scheme, for subscription of membership through NFO. In NFO, the unit price of a scheme is Rs.10. Suppose, the AMC raises Rs 1,000 crore during the NFO from various investors.

Since the issue price for NFO clients is fixed at Rs 10, AMC allots units to the investors based on the total amount raised. In this example, Rs 1,000 crore has been raised in the NFO and the NAV is Rs 10. Therefore, AMC issues 100 crore units (meaning Rs 1,000 crore / 10 NAV) and allocates them proportionately to investors based on their respective investment amounts. So, for example, if you have invested Rs 1 lakh in an NFO, 10,000 units will be allotted to you. So, now you know how to calculate NAV.

Let us understand this further –

  • An amount of Rs 1,000 crore raised in the NFO is invested in various securities as per the order of the scheme.
  • The market value of these securities changes on a daily basis.
  • The next day the portfolio asset value of the scheme increases from Rs 1000 crores to Rs 1030 crores. For the sake of simplicity, let’s ignore plan expenses for the time being. Scheme NAV will be Rs 10.3 crore after dividing Rs 1,030 crore outstanding (outstanding), by 100 crore units.

In open ended mutual fund schemes, investors can buy or sell units at any point of time at the declared NAV for the day. Existing investors can sell units at the NAV of that day without assuming exit load (exit load is the charge levied by the scheme for redemption within a specified period). So, what is meant by NAV in very simple words? The price at which investors can buy or sell units of a mutual fund scheme.

Other than this:

  • The NAV of a mutual fund unit is derived from the value of the underlying securities and the profits accumulated since the launch of the scheme.
  • Two different mutual fund schemes can have the same portfolio of securities and still one can be offered at at par value (NAV of Rs 10) while the other scheme has NAV more than Rs 100 could.

What does the NAV of an asset mean for investors?

NAV only determines how many units will be allotted for the amount invested. As an investor you should not care about how many units you have, instead, you should see how much the value of your investment has increased. In short, the focus should be on returns and not on NAV.

Hence, the NAV of a mutual fund scheme is not an accurate indicator of its performance. Before taking an investment decision, an investor should always look at the historical performance of the schemes and the total expense ratio along with other parameters.


We have discussed what NAV stands for and how NAV is calculated. NAV only determines the number of units allotted to you for your investment. It is not very important at which NAV you have taken the units, but how much has the value of your investments increased? Appreciation of NAV is more important than NAV. With this knowledge about NAV; Hopefully, you will be able to make a smarter investment decision.

Mutual fund investments are affected by market risks, read all the documents related to the schemes carefully.

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