NAV In Mutual Funds

It is ingrained in us as humans to research a product’s pricing before purchasing it. Whether it’s a piece of furniture, a car, or a stock, our natural tendency is to compare it to other brands. We then attempt to arrive at a sensible value that serves as the foundation for our judgement of the goods, including whether it is affordable, pricey, or occasionally even a good value for the money.




Our investing decisions follow this fundamental essence as well. When investing in the stock market, the first question that enters our minds is whether the stock price is high or low; we then base our choice on that view. When choosing mutual funds, a similar pattern is evident; you always consider the price. The net asset value, or NAV, as it is more often known, is the mutual fund counterpart of the price.


What Is NAV In Mutual Funds?


The following two concepts are crucial in mutual funds:


The first is units (equal to equity shares), while the second is NAV (the equivalent of the stock price, though not the same). Investors are assigned units, and the price at which they can acquire those units is referred to as the NAV.


A mutual fund’s whole capital is split into units, and these units are given to investors in proportion to their investment. Mutual funds invest this money in the stock market. Because the market value of assets fluctuates on a daily basis, so does the value of the corpus.


The NAV is simply the market value of all securities and assets owned by the mutual fund scheme, less liabilities and expenditures, divided by the total number of units held by all investors. It indicates the worth per unit at the current market rate of the assets it represents.


In layman’s terms, NAV is the price you pay for the mutual fund scheme’s units. The NAV increases in value as the fund’s assets under management expand. Generally, mutual funds issue units at a per-unit cost of INR 10. It might, however, decrease if the market value of the entire corpus falls.


What is the Mutual Funds Net Asset Value?


Unlike stocks, mutual funds do not trade in real time. Instead, they are determined using the trading approach, which principally focuses on a variety of assets and liabilities.


How Is NAV Calculated?


The Net Asset Value (NAV), which is frequently associated with Mutual Fund investments, is the market value of a share of a certain mutual fund. NAV is calculated by dividing the difference between a company’s assets and liabilities by the number of outstanding shares. NAV assists investors in determining if a fund is cheap or overpriced. It computes the value of a certain fund that you will get upon withdrawal of your investment.


The net asset value (NAV) of a mutual fund is calculated by dividing the fund’s net assets by the total number of outstanding units. The mathematical formula for calculating Mutual Fund NAV is as follows:


Net Asset Value = (Assets – Liabilities)/Total Number of Outstanding Units


The value of securities owned and liquid cash, equity, debentures, bonds, exchange bills, commercial papers, and any interest or dividend gained are all assets. Liabilities include expenditures such as money payable, interest payments, fund administration charges, and so on. At the end of the market day, fund managers compute the NAV of a mutual fund.


Difference Between Market Price and Net Asset Value


Many investors believe that Net Asset Value NAV and market price are the same thing, however they are not. When a mutual fund has a lower NAV, many investors believe it is cheaper and a good time to invest; however, this notion is erroneous. 


When a company is listed on the stock exchange, its shares become available for purchase by investors. The price of the shares is posted on the stock exchange, and an investor can pay and purchase them. This is the current share price. This market price is one of several elements that influence the market price.


The factors are the share demand and supply ratio, the company’s future potential, and previous performance. As a result, the share market price is a pure price that is influenced by a variety of variables.


Mutual funds and their units have no such notion or stock market listing. Mutual fund units are purchased at book value or net asset value. The net asset value is the overall value granted to mutual funds at the conclusion of the day and the market closing.


How Is The Net Value Of An Asset Relevant For Investors?


It is not suggested to choose mutual funds solely on the basis of their Net Asset Value. A lower NAV does not imply that the mutual fund is inexpensive and that the investor is earning by purchasing at a lower price or NAV. This is not the same as the share price or market price of stock market listed shares.


This merely displays the current unit value. A higher Net Asset Value simply reflects the scheme’s favourable performance and the fact that it was launched a long time ago. Furthermore, a higher NAV of a scheme suggests that an investor will receive fewer units, whilst a lower NAV means that an investor would receive more units.


Role Of NAV In The Performance Of A Fund


When deciding which mutual funds to invest in, an investor must evaluate historical performance, scheme type, expense ratio, credit risk score, and other factors as mutual funds advice.


As a result, while deciding whether to purchase or sell units of mutual funds, an investor must analyse the fund’s previous performance as well as the scheme’s kind.


  • Open-Ended Scheme


This open ended mutual funds scheme has no set maturity date; an investor can purchase or sell at the NAV-related price. The NAV is very crucial in this case.


  • Closed-End Scheme


These closed end mutual funds schemes have a defined maturity time, and investors can only invest during the first subscription period, after which they can only acquire or sell previously issued units.


The market price of the units will differ from the NAV in this case due to demand-supply considerations and market conditions.


  • Interval Scheme


This scheme combines the best features of both systems. They may be traded on stock exchanges or made available for sale/redemption at NAV-based pricing at predefined periods.


On Which Days Does NAV Apply?


On any business day, a person can invest in mutual funds, although they might not receive the same-day NAV. The NAV might be from the day before, today, or tomorrow. This is based on when the application is submitted and when funds are sent to the fund house. This is the mutual fund cut-off period, which differs for various funds. Specifically, stock, debt, and liquid money.


  • Liquid Funds:


The cutoff time for liquid funds is at 1.30 pm. Let’s say the investors send the money and submit the application before 1:30 pm. The NAV from the day before is appropriate in the situation. If the funds are not transferred before 1:30 p.m., the NAV in effect when the fund house receives the money is relevant.


  • For Equity and Debt Funds:


The deadline for both equity funds and debt funds is 3 p.m. The same day NAV is available if the investors apply by 3 pm. NAV is applicable the following day if the application is submitted after 3 o’clock. The sole exception to this regulation is that both the application and the transfer of funds must take place before the deadline for same-day NAV if the investment amount exceeds Rs. 2 lakh.


Therefore, if the investment amount is little and the investor plans to invest for a long period, cut-off timing is not particularly crucial. However, it matters to investors who are making substantial investments over a short period of time since one or two percentage points might mean a lot to these investors.




  • Should Mutual Fund Investors Be Concerned About the NAV?


No. In the case of mutual funds, the NAV is almost irrelevant. People in India place a high value on the NAV of a mutual fund. The NAV of newer mutual funds is lower than that of older ones. Most recent mutual fund investors have invested in younger mutual funds, confirming the myth that a lower NAV is better.


In reality, some investors have sold their old mutual fund units in order to invest in fresh mutual fund units.


If you are preparing to invest in mutual funds and see that one has a NAV of Rs.20 while another has a NAV of Rs.30. A mutual fund with a lower NAV should not be purchased. When investing in a mutual fund, you should consider various factors such as previous performance, AUM size, alpha, beta, and so on. However, NAV should not be considered.


  • What Is the Distinction Between NAV and AUM?


When investing, you should disregard the NAV but not the AUM. AUM, or Asset Under Management, is the entire amount of assets managed by the mutual fund. It comprises all of the mutual fund’s assets as well as its cash holdings. The NAV, or Net Asset Value, of a mutual fund, is the price of each unit.


  • When Does NAV Become Updated?


NAV is updated at the end of each business day. Mutual funds update the NAV at the end of each day. Every day, SEBI requires mutual funds to update their NAV by 9 p.m. Most mutual funds update the NAV at a different time than they update the AUM. Of course, this is before 9 p.m.

The NAV is not updated in real time due to the difficulties in continually tracking the value of the many assets owned by a mutual fund.


  • How Do the Sensex and Nifty Affect the NAV of a Mutual Fund?


This is determined by the type of mutual fund. Mutual funds invest in a wide range of assets. The NAV of a mutual fund is impacted by the Sensex or the Nifty depending on the type of assets owned by the mutual fund. The extent to which a mutual fund is influenced by the Sensex or Nifty is determined by the type and quantity of assets owned by it.


    • Sensex:

Sensex is a free-float market-weighted stock market index that includes 30 of the largest businesses listed on the Bombay Stock Exchange (BSE). These companies are among the most financially secure in the country.


    • Nifty:

Like the Sensex, the Nifty is a free-float market-weighted index of the largest companies listed on the National Stock Exchange (NSE). Unlike the Sensex, the Nifty index includes 50 of the largest companies. It is divided into 13 industry sectors. It, too, is made up of highly solid and financially healthy businesses.


    • Effect on NAV: 

The impact of the Sensex and Nifty on any NAV would be determined by how much those mutual funds had invested in firms that are part of the Sensex, Nifty, or both. The NAV of large-cap mutual funds, which invest in the country’s top companies, is heavily influenced by movements in the Sensex or Nifty.

Multi-cap mutual funds invest in companies of diverse sizes. Depending on the amount of large-cap assets they own, they may or may not be affected by fluctuations in the Sensex or Nifty.

It should also be noted that the success of large-cap funds frequently impacts the performance of mid-cap and small-cap funds.

As a result, it would be foolish to think that changes in the Sensex or Nifty would have no effect on mid-cap and small-cap enterprises. As a result, fluctuations in the Sensex and Nifty may influence the NAV of small-cap mutual funds and the NAV of midcap mutual funds.


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