Every evening, the mutual fund world quietly updates a number that decides how much your investment is worth. That number is the Net Asset Value, or NAV.
It may not be as flashy as stock prices or as hyped as IPOs, but if you’re putting money into mutual funds, understanding NAV isn’t optional—it’s essential.
And yet, many investors skip it. They either confuse it with a stock price or think it’s a technical detail best left to fund managers.
The truth? NAV is one of the simplest yet most powerful indicators of a mutual fund’s worth. Let’s break it down, piece by piece.
What is Net Asset Value?
Let’s start from the basics. Net Asset Value (NAV) is the per-unit price of a mutual fund scheme, updated at the end of each trading day.
Think of it like this: If a mutual fund is a big basket of stocks, bonds, or other assets, NAV tells you what one slice of that basket is worth at the end of the day.
So when you invest ₹5,000 into a mutual fund, and the NAV is ₹50, you’re essentially buying 100 units of that fund.
This is different from stock prices that fluctuate minute by minute. NAV in mutual fund schemes is declared once daily, after the markets close and the total value of all holdings is calculated.
But this brings up a common question: If NAV changes daily, does a lower NAV mean a better fund?
Short answer: No. A low NAV doesn’t mean the fund is cheap, and a high NAV doesn’t mean it’s expensive.
NAV just reflects the total value of the underlying assets divided by the number of units—nothing more, nothing less.
Now that we’ve defined what NAV is and how it reflects the per-unit value of a mutual fund, let’s dive into what happens once the NAV is declared.
Understanding the next steps after NAV is published will help you grasp how it impacts your investments and what actions you can take.
Here’s how the process unfolds once the NAV is announced at the end of each trading day.
What Happens After NAV is Declared?
Once NAV is published by the fund house (usually post 9 p.m. IST), here’s what happens:
- Your Purchase or Redemption Price Gets Locked In: If you place a buy or sell request before the cut-off time, the NAV declared for that day will be used. If after, then the next day’s NAV applies.
- You Can Track Performance: Investors often use NAV movement to track if their fund is growing. A rising NAV over time means the fund’s assets are increasing in value.
- Comparisons Begin: Investors might compare the NAVs of different schemes, especially during NFOs (New Fund Offers). But again—comparing NAVs across different schemes doesn’t reflect performance, unless you also consider returns, risk, and portfolio quality.
At this point, you might be wondering, what exactly causes NAV to rise or fall?
What Causes Change in NAV?
NAV changes every day because the value of the mutual fund’s assets and liabilities changes. Let’s look at the key factors that directly impact it:
1. Market Movement of Underlying Assets
This is the most direct influence. If a mutual fund holds shares of companies and the share prices go up, the value of the fund’s assets increases—so NAV goes up. If prices fall, NAV drops.
For example, if your equity fund has major holdings in IT companies and the Nifty IT index performs well that day, the fund’s NAV is likely to increase.
2. Dividend Payouts
If a fund pays dividends, the NAV reduces by the amount of dividend declared. That’s because the fund is paying money out of its own assets to investors.
3. Expenses and Fees
All mutual funds charge expenses (like fund management fees). These costs are deducted daily from the total assets, which reduces the NAV slightly. That’s why funds with lower expense ratios tend to perform better over the long term.
4. New Investments and Redemptions
While this doesn’t directly affect the NAV calculation, large-scale inflows or outflows can affect how the fund manager rebalances the portfolio, indirectly impacting asset value.
These dynamics highlight why NAV is not a fixed number, but a reflection of the fund’s health.
Now that we’ve explored the key factors that influence NAV changes, let’s take a deeper dive into how NAV is actually calculated.
Understanding the NAV formula helps you see the mechanics behind the changes we just discussed.
The NAV Formula: How It’s Calculated
At its core, the net asset value formula is:
NAV = (Total Assets – Total Liabilities) / Total Number of Outstanding Units
Let’s break that down:
- Assets include shares, bonds, cash, and interest accrued
- Liabilities include payments due, operational expenses, and fees
- Outstanding units are all the units held by investors
Example:
Let’s say a mutual fund has ₹100 crore in assets, ₹2 crore in liabilities, and 10 lakh outstanding units.
NAV = (100 – 2) crore / 10 lakh = ₹98 per unit
That ₹98 becomes the NAV for the day.
Now that we understand how NAV is calculated, it’s important to note that there isn’t just one type of NAV used across the board.
In fact, different types of NAV are applied for various purposes within the mutual fund ecosystem.
Understanding these distinctions can help you make more informed decisions about your investments. Let’s explore the most common types of NAV used in mutual funds and how each serves its specific function.
Types of NAV in Mutual Funds: A Closer Look
When it comes to understanding NAV in mutual funds, it’s crucial to know that there are different types of NAV used for various purposes in the mutual fund ecosystem.
Each type of NAV serves a unique function, and understanding these distinctions can help you make better investment decisions. Let’s break down the most common types:
1. Daily NAV
This is the most commonly referenced mutual fund NAV—it’s the price at which you can buy or sell units of a fund at the end of each trading day.
Every mutual fund updates its NAV on a daily basis, accounting for the value of its underlying assets (like stocks, bonds, or real estate) at market close.
The NAV is calculated after the market closes, ensuring that all of the day’s market activity is considered before determining the price.
- Why it matters: The daily NAV reflects the real-time market value of the fund’s assets. If you’re considering purchasing or redeeming units, the Daily NAV will be the price you pay or receive (depending on when you place your transaction).
- Example: Let’s say a mutual fund has assets worth ₹100 crore and liabilities of ₹5 crore. If there are 10 crore units outstanding, the NAV at the close of market on a particular day will be ₹9.50.
2. Sale NAV (Offer NAV)
This is the price at which you can purchase mutual fund units. The Sale NAV is typically used in funds that charge a fee when you enter (a front-end load).
This type of NAV includes the cost of purchasing units and may include sales charges that cover the fund’s expenses.
- Why it matters: When you invest in a mutual fund, you are buying at the Sale NAV, which may be slightly higher than the Daily NAV if the fund includes a sales load.
- Example: If a fund has a Daily NAV of ₹10 but charges a 2% entry fee, the Sale NAV you’ll pay could be ₹10.20. This difference goes toward covering the costs of managing the fund.
3. Repurchase NAV (Bid NAV)
This type of NAV comes into play when you choose to redeem or sell your mutual fund units back to the fund.
Repurchase NAV, also known as the Bid NAV, is typically lower than the Sale NAV because it may account for an exit load (if any), which is a fee charged when you sell your units.
- Why it matters: When you redeem your units, the fund buys them back at the Repurchase NAV. It’s important to know this value to understand how much you’ll receive after your exit load (if applicable).
- Example: If you invested in a fund at ₹100 per unit, but you decide to sell after a few years and the NAV drops to ₹90 due to market performance, the repurchase NAV will be ₹90 (unless there’s an exit load).
4. Switch NAV
Some funds offer the ability to switch your investments between different schemes within the same fund house.
The Switch NAV is used when you transfer your investment from one fund scheme to another. It’s calculated based on the NAV of both the Scheme A and Scheme B at the time of the switch.
- Why it matters: This type of NAV ensures that the transaction is done at a fair market price and prevents manipulation by ensuring both schemes are treated equally at the time of the switch.
- Example: If you have invested in an equity fund and want to switch to a debt fund under the same fund house, the Switch NAV will determine the transfer price for your units in both schemes.
5. Closing NAV
This type of NAV is generally the value of a mutual fund’s unit at the close of the market day. It is used for official reporting purposes and shows the value at which the fund will redeem units.
In some cases, the Closing NAV can also reflect any adjustments due to corporate actions like dividends or capital gains.
- Why it matters: This is the NAV you see in reports and communications from your fund house, often providing a benchmark for performance tracking over time.
- Example: If a fund has an NAV of ₹100 at the close of the market, and you purchased it a month ago at ₹90, your return is ₹10 per unit.
Why Understanding the Different Types of NAV Matters
Each type of NAV plays a role in different aspects of your mutual fund investment journey.
Understanding these types ensures you can better manage your expectations and make decisions aligned with your goals.
- For investors, understanding the Sale NAV and Repurchase NAV helps set expectations for when you’ll invest and exit. Knowing the Daily NAV lets you assess market trends and track performance.
- For SIP investors, the Daily NAV is key since your investment amount will purchase units based on the value of the fund at that time, allowing you to accumulate units over time at varying prices.
- Switch NAV provides flexibility when reallocating funds within the same fund house, ensuring transparency in unit transfers.
Knowing the net asset value meaning in each context helps you choose the right plan for your goals.
What’s Inside the NAV? A Look at Assets and Liabilities
A big part of understanding NAV is knowing what it contains. Here’s what typically goes into the calculation:
Assets:
- Stocks, bonds, or securities bought by the fund
- Cash and bank balances
- Interest or dividend income not yet received
Liabilities:
- Outstanding payments (brokerage, taxes)
- Management fees and expenses
- Other operational costs
NAV is the difference between these two—giving you the per-unit value of the mutual fund.
This is why NAV plays a critical role in measuring the fund’s performance. A steadily rising NAV in a growth fund is a good sign of effective fund management.
NAV and Mutual Fund Performance: How Are They Connected?
It’s important to note: NAV is not a performance score—it’s a reflection of value at a point in time.
So, what does NAV tell you?
- Growth Over Time: A rising NAV over months or years generally reflects positive fund performance. Compare NAV from the time you invested to the current one to calculate returns.
- Entry and Exit Points: NAV helps you determine how many units you’ll get during purchase and how much money you’ll receive during redemption.
- SIP Tracking: For SIP investors, NAV is the basis for allocating units at each investment interval. A lower NAV during a market dip may help you accumulate more units, benefiting you in the long run.
Remember, a fund with ₹10 NAV isn’t necessarily cheaper or better than one with ₹100 NAV. It’s the underlying performance, asset quality, and strategy that matter more.
Why NAV Matters and What It Really Means for You?
In today’s fast-evolving investment landscape, where more people are entering mutual funds through SIPs, NFOs, and direct platforms, the concept of net asset value in mutual fund investing has become more relevant than ever.
But NAV is more than just a number you see on your fund statement—it’s a critical part of how mutual funds function, and understanding it helps you make smarter, more informed decisions.
At its core, NAV in mutual fund schemes offers a transparent and standardised way to track your investment’s value. It updates daily, reflecting real-time changes in the value of the fund’s underlying assets.
Whether you’re trying to compare funds or simply monitor how your portfolio is performing, NAV acts like a pulse check on your investment health.
But why does NAV exist in the first place—and why should you care?
1. Transparent Pricing
NAV ensures that mutual fund units are priced fairly and clearly. At the end of every trading day, the fund house publishes the mutual funds NAV, showing exactly how much one unit is worth. This keeps you informed and eliminates any ambiguity in the buying or selling price.
2. Fair and Equal Allocation
Whether you invest ₹500 or ₹5 lakh, the NAV ensures you receive the correct number of units based on the same value as every other investor. This prevents manipulation or pricing bias and keeps the process fair for everyone.
3. Regulatory Backbone
NAV isn’t optional—it’s a requirement under SEBI regulations. Every fund house must calculate and disclose it according to standard norms, making sure there’s consistency, compliance, and trust built into the system.
4. Real-Time Tracking and Performance
Since net asset value mutual fund schemes are updated daily, it gives investors a consistent way to evaluate performance. A steadily rising NAV over months or years is a healthy sign that your fund’s underlying assets are growing in value.
5. Building Investor Confidence
Ultimately, NAV plays a big role in boosting investor confidence. It gives you a sense of control—you can see how your investment is doing without relying on guesswork or opaque updates.
For investors like you, NAV builds confidence. It reflects real-time fund valuation and allows you to track your investments transparently—no hidden surprises.
Conclusion:
By now, you’ve seen how NAV in mutual fund schemes is more than just a number. It’s a mirror of your fund’s value, a checkpoint for your portfolio, and a guidepost for making smarter financial decisions.
Understanding what is net asset value, how it’s calculated, and what affects it helps you move from guessing to investing with confidence.
However, always seek professional advice before deciding the best for yourself. Hyperbola is an AMFI regulated Mutual Fund Distributor, assisting its investors in making risk profile based decisions.
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FAQs
1. What is the net asset value of a mutual fund?
It’s the per-unit value of all the fund’s assets minus liabilities. It updates daily and tells you the worth of one unit of the mutual fund.
2. Does a lower NAV mean a better mutual fund?
No. NAV alone doesn’t indicate performance. A fund with ₹10 NAV can perform just as well—or better—than one with ₹100 NAV.
3. How does NAV affect SIPs?
When you invest through SIPs, your purchase price depends on that day’s NAV. Lower NAV means more units; higher NAV means fewer units. Over time, this averages out.