What is NAV in a Mutual Fund?

What is NAV in a Mutual Fund

A mutual fund is a fund with a massive amount of money managed by a professional Fund Manager. It is a trust that collects money from those investors who share a common investment objective and those who invest the same in bonds, equities, money market instruments, and other securities. 

The income or gains generated from this investment is dispensed accordingly amongst the investors after deducting the applicable expenses and levies by calculating a scheme’s “Net Asset Value” or NAV. Simply put, the money brought together by many investors makes up a Mutual Fund. 

Let’s take an example to understand this concept of nav in mutual fund Unit:-

Let’s say there is a box of 20 pencils costing ₹80. Four friends decide to buy the same box of pencils, but they have only ₹20 each, and the shopkeeper sells only the box. So the four friends then decide to pool ₹20 each and buy the box of 20 pencils. Each receives 5 pencils or 5 units based on their contribution if equated with Mutual Funds. And how is the cost of one unit calculated? Simply divide the total amount by the number of pencils: 80/20 = 4.00rs.

So if you multiply the number of units (5) by the cost per unit (4), your initial investment is ₹20.

This results in all four friends being unit holder in the box of pencils that is now collectively owned by all, with each being a part owner of the box.

What is NAV?

Net Asset Value (NAV) in mutual funds refers to the unit value of a mutual fund at which it is traded. It is the amount that is returned after the market values of all the units are added together, minus the liabilities, and then divided by the total number of units.

NAV is to a Mutual Fund What a Share Price is to a Share- a Measure of its Absolute Value.

As the market value of the assets held by the scheme changes daily, the NAV  of mutual funds also changes daily, and daily is disclosed by the fund. It is essential to know the function of the NAV of the mutual funds is mainly to gauge the scheme’s performance over time.

Calculation of NAV(Net Asset Value) of Mutual Funds

According to the share market, a mutual fund’s value fluctuates daily. The NAV is frozen at 3:30 pm when the stock market closes for the day.

The next day, the funds’ trading resumed at the previous day’s NAV. To determine the NAV of the present day, all the liabilities or administrative expenses are subtracted and divided by the total number of outstanding units, with the following formula:-

Net Asset Value = [Assets – (Liabilities + Expenses)] / Number of outstanding units

Here, securities and cash in hand are included in assets. Securities can include debt, equity, or any combination of the two. Assets also include interests and dividends.

All the outstanding liabilities, such as payments to others and all the administrative expenses, are subtracted from the assets to find the current assets, which are further divided by the number of outstanding shares to get the NAV.

What is a Good NAV for a Mutual Fund?

The NAV would be higher or lower than 10 Rs, depending on its performance. Do not avoid a scheme with a higher NAV because you are inflicting a penalty on it for performing better. NAVs of regular plans are lower than direct plans.

Is a higher or lower NAV better?

The Higher NAV of mutual funds generally suggests that the scheme has prospered well in the past or has been around for a long time. For example, NFOs (New Fund Offers) are generally launched at 10rs per unit. Let us take in the assumption that an equity NFO with 30 companies in its portfolio is launched at Rs.300

How is NAV Allotted?

As per the new Rules, the SIP units will be allotted to the investor at the NAV for the 10th only if the money is received or credited to the Mutual Fund’s bank account before 3.00 pm on the 10th. Otherwise, the SIP units will be allotted units at the Net Asset Value of the next business day on which the funds are received before the cut-off.

How Does NAV Increase or Decrease?

The NAV (on a per-share basis) represents the price at which the investors can either buy or sell units of the fund. The NAV increases when the value of the securities in the fund increases. The NAV decreases when the value of the securities in the fund decreases.


The ratio of assets to liabilities can be approached, which helps determine the risk level. NAV helps to keep a tab on individual risk and thus, ensures better risk management. NAV can also be evolved to suit the specifications of various new forms of investments, with its numerous derivations such as Absolute Return, Simple Annualised Return, Compounded Return, and Compounded Annual Growth Rate

NAV is the value of assets less the liabilities. Net Asset Value is a more viable way of reading into the value of an investment. It calculates the value of a mutual fund, including its cash value, sans its liabilities.

Frequently Asked Questions

Is a mutual fund with a low NAV Net Asset Value better?

They believe that a fund with a lower net asset value is cheaper than a high asset value and, hence, a better investment. In reality, a high or low NVA  is not an indicator of mutual fund performance. A lower value alone does not make a fund a better investment or vice versa.

Can NAV help measure absolute value?

Yes, NAV can help measure absolute value.

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