What Is NAV in Mutual Funds?

Understanding Net Asset Value (NAV)

When you invest in a mutual fund, you don't buy shares; you buy units of the fund. The price of one single unit of a mutual fund is called its Net Asset Value (NAV).

Just like a stock has a share price, a mutual fund has a NAV. However, while a stock price changes every second during market hours based on demand and supply, a mutual fund's NAV is calculated only once at the end of every trading day.

How Is NAV Calculated?

The calculation of NAV is straightforward in theory. At the end of the market day, the fund house totals the market value of all the securities (stocks, bonds, cash) the fund holds. They then subtract the fund's liabilities (like operating expenses). This remaining amount is divided by the total number of units issued to investors.

NAV = (Total Market Value of Assets - Total Liabilities) / Total Number of Units Outstanding

The Biggest Misconception: Is a Low NAV "Cheaper"?

A very common misunderstanding among new investors is assuming that a fund with a NAV of ₹10 is "cheaper" or "better" to buy than a fund with a NAV of ₹100. This is completely incorrect.

Unlike stocks, where a lower price might mean you can buy more shares with your capital, the NAV of a mutual fund is irrelevant to your eventual returns.

Why Does NAV Matter Then?

NAV matters purely as a unit of measurement to track the performance of your fund over time. By looking at the percentage change in NAV over a period, you can determine how well your investment has performed.

Key Takeaways

• NAV represents the per-unit market value of a mutual fund.
• It is calculated at the end of each trading day.
• A lower NAV does not mean a fund is "cheap" or poised to give higher returns. Focus on the fund's portfolio and track record instead.