What Is NAV in Mutual Funds? How It Is Calculated and Why It Matters

Every mutual fund investor sees the term NAV on their statement, on the AMC website, and on apps like Groww, Kuvera and Zerodha Coin. But what does NAV actually mean, how is it calculated, and does a "cheap" NAV give better returns? This guide answers these questions in plain English.

What Is NAV?

NAV stands for Net Asset Value. It is the per-unit price of a mutual fund scheme on a given day. When you invest ₹10,000 in a fund with a NAV of ₹50, you receive 200 units. When you redeem, the applicable NAV at that time multiplied by your units determines how much money you get back.

NAV is the mutual fund equivalent of a stock’s share price — but it is computed and published only once a day for most schemes, after markets close.

How Is NAV Calculated?

The formula is straightforward:

NAV = (Market Value of all Assets − Liabilities and Expenses) ÷ Total Units Outstanding

Here is what each piece means:

• Market value of assets: The closing prices of every stock, bond, cash holding and other instrument the fund owns.
• Liabilities and expenses: Fund management fees, operating expenses and any amounts payable are subtracted.
• Total units outstanding: The sum of all units held by all investors in that scheme on that day.

Because stock prices change daily, the NAV changes daily too. For debt funds, the change is driven mainly by interest-rate movements and accrued interest.

Cut-Off Time: Why It Matters

SEBI has defined a cut-off time for each scheme category. If your investment amount is received by the AMC before the cut-off, you get the same day’s NAV. If it is received after, you get the next business day’s NAV.

The current rule for most mutual funds is that units are allotted based on the NAV of the day on which the funds are actually credited to the AMC’s bank account — subject to the application being received before cut-off. This is why your SIP sometimes gets a NAV one or two days different from the SIP date.

Does a Lower NAV Mean a Cheaper Fund?

This is one of the most common misconceptions. A fund with a NAV of ₹15 is not cheaper than a fund with a NAV of ₹500. The NAV is simply a reflection of how long the fund has been running and how much it has appreciated.

Consider two funds that start with the same NAV of ₹10 and invest in the exact same portfolio. After 20 years, one might be at NAV ₹150 and the other at ₹160 purely because of dividend declarations, scheme type, or launch date. What matters is the percentage return going forward, not the absolute NAV number.

When you buy a fund at NAV ₹15, you get more units; when you buy at NAV ₹500, you get fewer units. Either way, a 10% rise in the underlying portfolio gives you a 10% return. The NAV number alone tells you nothing about future performance.

Growth NAV vs IDCW NAV

Most schemes offer two plan options:

• Growth Plan: Profits are reinvested into the scheme. The NAV keeps rising over time to reflect compounding.
• IDCW Plan (formerly Dividend): The fund periodically distributes income from the scheme. Each payout reduces the NAV by that amount.

Over the same period, a Growth plan NAV will generally be higher than an IDCW NAV — because the IDCW NAV keeps getting reset downwards after each payout. For most long-term investors, the Growth option is more tax-efficient and simpler.

Where to Check Daily NAV

• Your AMC’s official website.
• The AMFI website, which publishes NAVs of all schemes every evening.
• Mutual fund platforms and investment apps.

Common Mistakes to Avoid

• Choosing a fund just because its NAV looks low.
• Trying to time your SIP based on daily NAV movements.
• Comparing NAVs across different fund houses to decide which is "cheaper."
• Confusing a drop in NAV due to IDCW with a real loss in value.

Key Takeaways

• NAV is the per-unit value of a mutual fund scheme, computed daily after market close.
• The NAV formula is (Assets − Liabilities) ÷ Units.
• A lower NAV does not mean a better or cheaper fund.
• Cut-off time determines which day’s NAV you receive.
• Compare funds on expense ratio, portfolio quality, and long-term returns — not on the NAV number.

Understanding NAV correctly removes one of the biggest confusions beginners face when choosing a mutual fund. Treat it as a technical price tag, not as a measure of value.