Imagine you’re comparing two mutual funds. One has an NAV of ₹18, while another has an NAV of ₹185. At first glance, the ₹18 fund might seem like the better bargain. After all, paying less per unit sounds like a smarter deal, right? Not quite.
This is one of the biggest misconceptions among new mutual fund investors. Unlike stock prices, a mutual fund’s NAV doesn’t tell you whether it’s expensive, cheap, or likely to deliver better returns.
In this article, you’ll learn what NAV in mutual funds means, how it’s calculated, why it changes every day, whether a lower NAV is actually better, and the factors you should compare before investing in a mutual fund.
NAV in Mutual Funds: Key Takeaways
Before we dive deeper, here’s the short answer to the two most common questions investors ask about NAV.
What is NAV? NAV, or Net Asset Value, is simply the price of one unit of a mutual fund. It’s calculated by dividing the total value of a fund’s holdings (minus expenses and liabilities) by the number of units investors hold.
Does a lower NAV mean a better fund? No. A fund’s NAV has nothing to do with how good or bad it is. What matters is how well the fund’s underlying investments perform over time, not the starting price of a single unit.
While many investors compare mutual funds based on their NAV, that’s often the wrong approach because NAV doesn’t indicate whether a fund is expensive, cheap, or likely to deliver better returns.
What Is NAV in Mutual Funds?
Think of NAV as the price tag on one unit of a mutual fund. Just as a company’s share trades at a certain market price, a mutual fund’s unit trades at its NAV.
When you invest ₹10,000 in a mutual fund with an NAV of ₹100, you get 100 units. If the same amount goes into a fund with an NAV of ₹10, you get 1,000 units. Either way, you’ve invested the same ₹10,000; you just own a different number of units.
Here’s why this matters: the number of units you hold is meaningless on its own. What matters is the total value of those units, and that depends entirely on how the fund performs after you invest.
What Does NAV Actually Represent?
NAV represents the current worth of everything the fund owns, divided equally among all its unit holders.
A mutual fund pools money from thousands of investors and uses it to buy stocks, bonds, or other securities. Every day, the value of this basket of investments changes. NAV is simply a way of expressing “your share” of that basket, per unit, at the end of the day.
So when you check a fund’s NAV, you’re really checking: if the fund sold everything it owns today and paid off its expenses, how much would one unit be worth?
How Is NAV Calculated?
The formula sounds technical, but the idea behind it is simple:
NAV = (Total Assets − Total Liabilities) ÷ Total Number of Outstanding Units
Let’s break down each part in plain language.
- Total Assets: Everything the fund owns right now stocks, bonds, cash, and any other investments valued at current market prices.
- Liabilities: Expenses the fund owes, like fund management fees and other operating costs.
- Outstanding Units: The total number of units held by all investors in the fund put together.
Here’s an easy example. Suppose a fund’s total investments are worth ₹100 crore, and its liabilities and expenses add up to ₹2 crore. That leaves ₹98 crore as the fund’s net assets. If there are 9.8 crore units held by investors, the NAV works out to ₹10 per unit.
That’s it. No hidden complexity, just the fund’s net worth divided by however many units exist.
Don’t worry about memorising the formula. As an investor, the important thing is understanding what NAV represents, not calculating it yourself.
Why Does NAV Change Every Day?
Here’s why NAV isn’t a fixed number: the value of the stocks and bonds inside the fund moves every single trading day, and so does the NAV.
A few things drive this change:
- Market movement. If the stocks or bonds a fund holds go up in value, the NAV rises. If they fall, the NAV drops.
- Portfolio value. Even small shifts across the many securities in a fund’s portfolio add up and get reflected in that day’s NAV.
- End-of-day calculation. Mutual funds calculate and publish NAV once a day, after markets close, based on the closing prices of everything the fund holds. This is why you won’t see NAV moving minute-to-minute the way a stock price does.
This daily recalculation is completely normal. It doesn’t mean something is wrong with the fund; it just means the fund’s holdings are being marked to their current market value.
Does a Lower NAV Mean a Better Mutual Fund?
This is the question that trips up almost every new investor, and the honest answer is: no, it doesn’t.
Let’s understand this with an example.
Imagine two pizza shops. Shop A sells one large pizza for ₹500. Shop B sells the same size pizza cut into ten slices, at ₹50 a slice. Either way, you spend ₹500 for the same pizza.
Mutual funds work the same way. Buying fewer units at a higher NAV doesn’t automatically make them expensive. Buying more units at a lower NAV doesn’t automatically make them cheap. What matters is how much your total investment grows, not the price of a single unit at the start.
Here’s a more concrete comparison. Say you invest ₹10,000 in two funds:
- Fund A has an NAV of ₹200. You get 50 units.
- Fund B has an NAV of ₹20. You get 500 units.
If both funds’ underlying investments grow by 10% over a year, Fund A’s NAV rises to ₹220, and Fund B’s rises to ₹22. Your investment in Fund A is now worth ₹11,000 (50 × ₹220), and your investment in Fund B is also worth ₹11,000 (500 × ₹22). Same growth, same result, even though the NAVs looked completely different.
The bigger question is never “which NAV is lower,” but “which fund’s underlying investments are likely to grow faster.”
NAV vs Share Price
Many beginners assume NAV works like a stock price. It doesn’t, and the differences matter.
| Aspect | NAV (Mutual Fund) | Share Price (Stock) |
| How it’s set | Calculated once a day, after markets close | Changes continuously during market hours |
| What it reflects | Value of the fund’s entire underlying portfolio | Demand and supply for that one company’s stock |
| Trading | You buy/sell at the NAV declared for that day | You buy/sell at the live market price |
| What a “low” number means | Nothing about fund quality | Sometimes reflects a smaller or newer company |
| Driven by | Combined performance of many securities | Performance and sentiment around a single company |
A stock’s price can reflect investor demand, hype, or scarcity. NAV doesn’t work that way; it’s a mechanical calculation based purely on the value of what the fund holds.
Does NAV Affect Your Returns?
No. Here’s why: your returns depend on how much the fund’s underlying investments grow in percentage terms, not on what the NAV happened to be when you invested.
Let’s understand this with an example. Two investors put ₹50,000 each into two different funds on the same day, one with an NAV of ₹50, the other with an NAV of ₹500. A year later, if both funds have grown by 12%, both investors end up with ₹56,000. The starting NAV had zero impact on the outcome.
This is why comparing two funds purely on their NAV numbers tells you nothing useful about which one will make you more money.
Does NAV Matter for SIP Investments?
If you invest through a Systematic Investment Plan (SIP), your money goes into the fund at a different NAV every month, depending on where the market stands at that time.
Here’s why that’s actually useful. When the NAV is lower, your fixed instalment buys you more units. When the NAV is higher, the same instalment buys you fewer units. Over many months, this evens out the average price you pay per unit, a concept called rupee cost averaging.
Let’s understand this with an example. Suppose you invest ₹5,000 every month for three months, and the NAV happens to be ₹50, ₹40, and ₹62.50 in those months.
- Month 1: ₹5,000 ÷ ₹50 = 100 units
- Month 2: ₹5,000 ÷ ₹40 = 125 units
- Month 3: ₹5,000 ÷ ₹62.50 = 80 units
You’ve invested ₹15,000 in total and received 305 units, working out to an average cost of about ₹49.18 per unit, lower than the ₹50 NAV you started at, and without you having to time the market at all.
This is why long-term SIP returns depend more on the fund’s performance than on the NAV at which each instalment is invested. Whether a particular month’s SIP happened to buy units at ₹45 or ₹52 matters far less than how the fund performs over the years you stay invested.
What Should Investors Compare Instead of NAV?
If NAV shouldn’t influence your decision, what should? Focus on factors that actually affect a fund’s long-term performance and suitability for your goals.
- Expense Ratio: The yearly fee the fund charges to manage your money. Lower expense ratios mean more of your returns stay with you.
- Fund Performance: How the fund has performed over 3, 5, and 10-year periods, compared to its benchmark and category peers.
- Risk: How much the fund’s value swings, and whether that volatility matches your comfort level.
- Fund Manager: The experience and track record of the person or team managing the fund’s investment decisions.
- Portfolio Quality: What the fund actually invests in, the sectors, companies, or bonds it holds, and how diversified it is.
- Investment Objective: Whether the fund’s goal (growth, income, tax-saving, and so on) matches your own financial goal.
- Consistency: Whether the fund has delivered steady performance across different market cycles, rather than one lucky year.
These factors tell you far more about a fund’s future potential than its current NAV ever could.
Practical Tips Before Investing
- Compare funds using their percentage returns over multiple time periods, not their NAV.
- Check the expense ratio; a small difference compounds significantly over the years.
- Read the fund’s investment objective to see if it matches your own goals.
- Look at how the fund performed during market downturns, not just during rallies.
- Check the fund manager’s tenure and track record with the fund.
- Avoid investing in a fund just because it’s newly launched with an NAV of ₹10.
- Think in terms of the amount you want to invest, not the number of units you’ll receive.
Key Takeaways
- NAV is simply the price of one mutual fund unit.
- A lower NAV does not mean a fund is cheaper or better.
- Your returns depend on the fund’s performance, not its NAV.
- Compare expense ratio, risk, consistency, and portfolio quality instead of NAV.
- Always choose a mutual fund based on your financial goals, not the number of units you’ll receive.
Final Verdict
One of the biggest mistakes new investors make is assuming that a lower NAV means a better investment. In reality, NAV is simply the price of one mutual fund unit; it doesn’t tell you whether a fund is expensive, cheap, or capable of delivering better returns. Instead of comparing NAVs, focus on factors that truly matter, such as long-term performance, expense ratio, risk, portfolio quality, and investment strategy.
The next time you compare two mutual funds, don’t let the NAV influence your decision. A fund’s true value lies in the quality of its underlying investments and its ability to deliver consistent returns over time, not in the price of a single unit. Understanding this distinction will help you make more informed investment decisions and avoid one of the most common myths in mutual fund investing.
FAQs
What is NAV in mutual funds?
NAV, or Net Asset Value, is the price of one unit of a mutual fund, calculated by dividing the fund's net assets by its total outstanding units.
Does NAV change daily?
Yes. NAV is recalculated and published once every trading day, based on the closing value of the fund's holdings.
Why do all new mutual funds start with an NAV of ₹10?
This is a standard starting price used across the industry when a new fund is launched. It has no bearing on the fund's future performance.
Does NAV affect SIP returns?
No. In an SIP, you buy units at whatever the NAV is on each investment date, but your overall returns depend on the fund's percentage growth over time, not the individual NAVs at which units were purchased.
Should I buy a mutual fund with a low NAV?
Not for that reason alone. A low NAV doesn't indicate value or discount; evaluate the fund on performance, risk, and cost instead.
ARN Disclosure: Investik Future is an AMFI-registered Mutual Fund Distributor. ARN-341107 — Verify on AMFI ↗. Himani Soni is the content author and digital marketer; the ARN registration belongs to Investik Future, not to the author personally.
