net asset value is the price of one unit of a mutual fund. it is what investors pay when buying units and what they receive when redeeming them . the nav is calculated at the end of every trading day after the markets close, based on the closing prices of all securities held in the fund’s portfolio .
a common mistake is treating nav like a stock price. they are not the same . a stock price is driven by supply and demand, market sentiment, and expectations about a company’s future. nav is simply the total value of the fund’s underlying investments divided by the number of units. demand and supply for the fund’s units do not affect its nav .
the formula. how nav is calculated
the calculation is straightforward .
nav = (total assets – total liabilities) / number of outstanding units .
total assets include the market value of all securities held, cash, and any accrued income . total liabilities include management fees, operating expenses, and other amounts owed .
example. a mutual fund has investments worth ₹100 crore, cash of ₹5 crore, and liabilities of ₹5 crore. net assets are ₹100 crore. if the fund has 10 crore units outstanding, the nav is ₹10 per unit .
domestic mutual funds typically declare their nav by 11 pm on the same business day. international funds of funds have until 10 am on the next business day .
nav vs stock price. why they are different
| aspect | nav | stock price |
|---|---|---|
| what it represents | per-unit value of a fund’s portfolio | price of a single company share |
| how it changes | changes with portfolio value | changes with supply and demand |
| calculation frequency | once a day, after market close | throughout the trading day |
| influenced by | underlying asset prices | sentiment, earnings, market forces |
a stock can be overvalued or undervalued based on its fundamentals. a mutual fund nav has no such concept. it is simply the value of what the fund holds at that moment .
does a lower nav mean a cheaper fund
no. this is one of the most common misconceptions .
example. investor a invests ₹10,000 in a new fund with nav of ₹10. investor b invests ₹10,000 in an existing fund with nav of ₹100. both get units worth ₹10,000. if both funds rise 2%, both investors have ₹10,200. the nav difference did not matter .
a lower nav does not mean better returns. what matters is the fund’s performance, not its unit price . a well-managed fund with a higher nav can still deliver better returns than a poorly managed fund with a lower nav.
why nav matters
nav is useful for one purpose. calculating the number of units purchased or redeemed . it also helps track day-to-day performance.
but nav alone does not tell anything about a fund’s quality. two funds with the same nav can have very different portfolios, risk profiles, and return potential. comparisons should be based on returns, expense ratios, and consistency across market cycles, not nav .
the total return matters more than the nav. this includes capital appreciation and any dividends or distributions paid out by the fund .
frequently asked questions
1. what is nav in mutual funds
nav is the per-unit price of a mutual fund scheme. it is calculated daily after market close based on the value of the fund’s holdings.
2. how is nav calculated ?
nav = (total assets – total liabilities) / total outstanding units. total assets include all investments and cash. liabilities include expenses and fees.
3. is a lower nav better for investing ?
no. nav does not indicate value or growth potential. a fund with a higher nav can perform better than one with a lower nav. focus on returns and consistency, not nav.
4. what is the difference between nav and stock price ?
stock price changes throughout the day based on supply and demand. nav changes once a day based on portfolio value. stock price can reflect sentiment. nav is just the math.
5. does a fund’s nav affect its returns ?
no. returns depend on the fund’s performance. nav is just the unit price. it does not impact how much the fund grows over time.
