Understanding Mutual Fund NAV

The NAV reflects the market value of scheme’s investments on any given day. As the market value of securities in the fund’s portfolio move up or down, the NAV changes accordingly.

Jul 2025 - 3 mins read

https://www.pgimindia.com/api/v1/insights/download/image/Understanding-Mutual-Fund-NAV-360x200.jpg

Picture this: you walk into a jewellery shop to buy a gold chain. The price the shopkeeper quotes isn’t random - it’s based on the chain’s weight and the current market price of gold that day. If gold prices go up, your chain is instantly worth more; if prices fall, so does its value.

In the same way, when you invest in a mutual fund, the value of your investment changes every day based on the market value of the fund’s underlying assets - stocks, bonds, or other securities. This daily value is captured in what’s called the Net Asset Value, or NAV. But what exactly is NAV, and why is it important for you as an investor? Let’s break it down in simple terms.

Every product has a price tag. In the context of mutual funds, Net Asset Value (NAV) is the price per unit you pay while investing in mutual funds.

Typically, equity oriented new fund offers (NFO) open with NAV of Rs.10 each. If you invest Rs.10,000 lumpsum during NFO, you will get 1,000 units (10,000/10). Some Debt Funds open with NAV of Rs.1,000 each during NFO.

What does the NAV indicate?

The NAV reflects the market value of scheme’s investments on any given day. As the market value of securities in the fund’s portfolio move up or down, the NAV changes accordingly. If the fund’s performance deteriorates, the NAV goes down. If the performance improves, the NAV goes up. The changes in day to day NAV is used in computation of the fund’s performance.

When you redeem/withdraw from a fund, you get the proceeds which are calculated based on the NAV of the corresponding redemption date multiplied by the number of units you hold. For instance, if the fund’s NAV on the redemption date is 55 and you hold 3,000 units, you will receive Rs.1,65,000, assuming zero exit load.

Why is the NAV for regular and growth plans different?

Regular plans include commission paid to distributors. Direct plans do not charge this expense. Hence, the Total Expense Ratio (TER) of direct plans tend to be lower, to the extent of commission, than regular plans. Thus, the NAV of direct plans are higher than that of regular plans. This translates into higher return for investors in direct plans vis-à-vis the regular plan of the same fund.

How is NAV calculated?

NAV (in Rs. terms) = Market or Fair Value of scheme's investments + Current Assets - Current Liabilities and Provision/Number of Units outstanding under scheme on the Valuation Date.

Is 10 NAV cheaper than a fund with 1,000 NAV?

Many investors harbor this myth that a lower NAV is better. That’s why investors rush to invest in NFOs thinking they are getting the fund at a lower price. That may be true in the case of shares, to some extent, as long as they are available below fair value, but things work differently when you invest in a mutual fund. Let’s see with an example.

Suppose investor A invests Rs.10,000 in a NFO which has NAV of 10.

Investor B chooses to invest the same amount Rs.10,000 in an existing fund which has NAV of 100.

Investor A gets 1,000 units.

Investor B gets 100 units.

If the NAV moves up by 2% in two months for both funds, the NAV’s move up to 102 for Investor B and 10.2 for investor A. The fund’s value will be calculated as : Units X prevailing NAV.

The fund value will be same for both investors - Rs.10,200.

Investor A: 1,000*10.2: Rs.10,200
Investor B: 100*102: Rs.10,200

Thus, you can see that the difference in NAV does not have any bearing on the final outcome. The fund’s performance is more important than simply looking at the NAV while choosing a fund.

Let’s flip the equation now.

Suppose Investor B’s fund delivers 4% during the same period. The NAV increases to 104. In this case the investor will have: Units X NAV: 100*104: Rs.10,400. Profit: 400.

You will notice that investor A gets more units with a lower NAV. But units itself will not be helpful if the fund does not perform.

Investor A has to invest double the money (Rs.20,000) to earn the same profit as Investor B, assuming her fund delivers 2%. Rs.20,000/10: 2,000 units. Units X NAV: Rs.2,000 X 10.2: Rs.20,400-Rs.20,000: Profit Rs.400. Investor A has to invest double the money (Rs.20,000) to earn the same profit as Investor B, assuming her fund delivers 2%. Rs.20,000/10: 2,000 units. Units X NAV: Rs.2,000 X 10.2: Rs.20,400-Rs.20,000: Profit Rs.400.

How often are NAVs updated?

Domestic funds declare NAV at the end of every business day which are updated on AMFI and fund’s website by 11 PM. International FoFs have to disclose the NAV by 10 am on the next business day (T+1).

Summing up, the net asset value reflects the value of your mutual fund holding on any given date. When you are evaluating a fund for investing, the NAV reveals nothing about the fund’s future ability to perform. A lower or higher NAV is neither good or nor bad.

Back