What is NAV and how it is calculated?

What is NAV?

If you are a new mutual fund investor you would like to know what is NAV in mutual fund. NAV or Net Asset Value is the unit price of a mutual fund scheme. Mutual funds are bought or sold on the basis of NAV. Unlike share prices which changes constantly during the trading hours, the NAV is determined on a daily basis, computed at the end of the day based on closing price of all the securities that the respective mutual fund schemes own after making appropriate adjustments. The expenses (known as TER) of a mutual fund scheme like fund management; administration, distribution etc. are charged proportionately against the assets of the scheme and are adjusted in the scheme NAV.

How is NAV calculated?

Once you know what is NAV, you must be curious to know how is NAV calculated!

A mutual fund company (AMC) offers a new scheme for subscription through a new fund offering (NFO). In an NFO, the units of a scheme are priced at Rs 10. Let us assume, the AMC mobilizes Rs 1,000 Crores during the NFO from different investors. Since the issue price is fixed at Rs 10 for the NFO subscribers, the AMC allots units to the investors based on the total amount mobilized. In this example, Rs 1,000 Crores is mobilized in the NFO and the NAV is Rs 10. Therefore, the AMC issues 100 Crore units (Rs 1,000 Crores / Rs 10 NAV) and allots proportionately to investors based on their respective investment amounts. So, if you invested Rs 1 lakh in this an NFO, you will be allotted 10,000 units. So, you now know how NAV is calculated!

Let us understand this further - The amount of Rs 1,000 crores mobilized in the NFO is invested in various securities as per the scheme mandate. The market prices of these securities change on a daily basis. Let us also assume, the next day, the portfolio asset value of the scheme appreciates from Rs 1000 Crores to Rs 1020 Crores. For the sake of simplicity, let us ignore scheme expenses for the time being. The scheme NAV will be Rs 10.2 (Rs 1,020 Crores divided by 100 Crore units outstanding). Therefore, you investment of Rs 1 Lakh in the NFO is now worth Rs 102,000 (10,000 units x Rs 10.20 NAV).

In an open ended mutual fund scheme, investors can buy or sell units at any time on the NAV declared for the day. Existing investors can sell units at the same price, assuming no exit load (exit load is a charge applied by the scheme for redemptions within a certain specified period). Therefore, what does NAV mean in very simple terms, is the price at which investors can buy or sell units of a mutual fund scheme!

How is the Net Value of an Asset Relevant for Investors?

Does the NAV really relevant? NAV NAV only determines how many units get allotted for the investment amount. As an investor you should not care about how many units you own, instead you should see how much your investment has appreciated in value. The appreciation of a scheme NAV is more important than the NAV itself. In short, focus should be on return and not on NAV.

Role of NAV in the performance of a fund

Some investors think that NFOs are cheap because they are issued at NAV of Rs 10. The NAV of a mutual fund unit is derived from the value of the underlying securities and the accumulated profits since scheme launch. Two different mutual fund schemes may have exactly the same portfolio of securities and yet one may be offered at par value (NAV of Rs 10) while the NAV of the other scheme might be more than Rs 100; the difference in NAV notwithstanding the intrinsic value of the both the schemes will be exactly the same.

Therefore, a mutual fund scheme’s NAV is not an appropriate indicator of its performance. Investor should always look at the scheme’s historical performance and total expense ratio among other parameters before making an investment decision.


We have discussed what does NAV mean and how is NAV calculated. The NAV only determines how many units you get allotted for your investments. It is not very important as to what the NAV at which you acquired units but how much your investments have appreciated in value? The appreciation in NAV is much more important than NAV. Armed with this knowledge about NAV; hopefully, you will be able to make smarter investment decisions.

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