What is Net Asset Value (NAV) in Mutual Funds?


NAV or Net Asset Value is probably the most overrated aspect of mutual fund schemes.

However, recently as the importance of NAV increased in the minds of investors, many myths started circulating on the internet. As a result, now understanding NAV and being aware of its myths has become critical to avoid making incorrect investing decisions.

In this article, we will help you understand what mutual fund NAV is, its importance, and the myths surrounding it.

What is the Net Asset Value (NAV)?

Simply put, NAV or Net Asset Value is the price of a mutual fund scheme unit at which you buy and sell it on a given day.

5 things you must know about the Net Asset Value (NAV):

  • Unlike stock prices that fluctuate every few seconds, the NAV of mutual fund schemes is considered to be the same for all buy and sell transactions on a given day. Simply put, one NAV per day
  • The NAV of each mutual fund scheme is different
  • Even the NAV of different plans (regular/direct) and different options (growth/IDCW) of the same mutual fund scheme are different
  • The NAV of each mutual fund scheme is published at the end of the day on the website of respective Mutual Fund and on AMFI. As per SEBI, the NAV must be published before 11 PM on the same day (before 10 AM on the next day for FoFs)
  • This means when you are transacting in a mutual fund scheme, you don’t know the buying/selling price when you are placing the order

How is the NAV Calculated?

NAV calculation considers the assets (like stocks) and liabilities (like outstanding fees) and number of units the mutual fund scheme has issued until now.

Arranging these values gives us the following mathematical formula of NAV.

NAV Formula

NAV = (Total Assets - Total Liabilities) / Total Units Outstanding

In the following table, we have highlighted some of the most important assets and liabilities of a mutual fund scheme.

Investments (Stocks and Bonds)Fees Payable (Management + Trustee + Custody + RTA Fees)
Bank Balance (Cash + Cash Equivalents)Unclaimed Dividend and Redemption
Interest Accrued (but not due)Taxes and Dividend Payable 

NAV Calculation

Suppose a mutual fund scheme has total assets of ₹1,000 crore, and its total liabilities stand at ₹40 crore. Further, the scheme has issued 2 crore units. Inserting these values in the formula discussed above, we get:

Net Asset Value = (1,000 crore - 40 crore)/2 crore

NAV = ₹480

Hence, ₹480 is the NAV of the scheme for the considered plan, option and day.

Mutual Fund NAV Myths

3 of the most dangerous NAV myths investors believe in are:

  1. Low NAV implies that a mutual fund scheme is cheap and available at a bargain
  2. Regular mutual fund plans are more affordable than direct plans because their NAVs are lower
  3. NAV is an indicator of future performance

Let’s look at why these are dangerous myths and what the reality is.

Myth #1: Low NAV implies mutual fund is available at a bargain

Most investors think a low NAV implies that the fund’s units are cheaper and good for investment. In contrast, funds with high NAV are expensive investments with low potential for future returns.

A mutual fund investor who believes in this myth will prefer to invest in a mutual fund over others solely for the lower NAV of the fund.

The truth is NAV has no role in determining the future performance of mutual fund schemes.

Myth #2: Regular mutual fund plans are cheaper than direct plans because of lower NAV

This is an extension of the first myth but a bit more dangerous because it is peddled by mutual fund distributors (MFDs) who sell regular mutual funds.

The business model of MFDs is selling regular mutual funds and earning commission from your investments. The commissions are paid to them by the mutual fund companies (like HDFC Mutual Fund, Mirae Asset Investment Managers etc.) and not by the investors directly.

In contrast, investing in direct plans through investment advisors or yourself helps you save the commission.

Many MFDs trick investors into believing that they provide their services for free. Another trick they use on investors who are aware of direct plans is to tell them that regular plans are cheaper than direct plans because their NAV is lower. This is not the right way to look at it.

The NAV of regular plans is lower because their returns are lower than direct plans. This differential in performance comes from commission payments made to MFDs by the regular plan of the mutual fund scheme. Instead of disclosing this to a potential client, MFDs may show clients a completely different picture.

At Dezerv, we conduct a part of our business as MFDs. However, we ensure that we disclose that you are investing in regular plans and even communicate the approximate commission we stand to earn if you invest with us.

Myth #3: NAV is an indicator of performance

It is true that the NAV of a high performing mutual fund scheme will grow fast. But, by itself, the NAV cannot tell you anything about the future performance.

Consider the following as of Aug 2023:

Fund scheme - plan - optionNAV (rounded off)
Quant Liquid Fund - Regular - Growth₹36
ICICI Pru Flexi Cap Fund - Regular - Growth₹13

Disclaimer: Above schemes are chosen randomly for illustrative purposes only. They are not and should not be construed as investment recommendations or advice.

An investor who believes that NAV is an indicator of performance would think that HDFC Liquid Fund has performed better than ICICI Pru Flexi Cap Fund and will continue to do so.

But the reality is that in the last 1 year (as of Aug 2023), ICICI Pru Flexi Cap Fund delivered a 12.6% return, whereas Quant Liquid Fund delivered a 6.3% return. 

Further, over the long term, ICICI Pru Flexi Cap Fund will likely deliver a higher return than Quant Liquid Fund. This is because ICICI Pru Flexi Cap Fund is an equity fund and Quant Liquid Fund is a debt fund, and it has been observed that over long periods, equity generates a higher return than debt.

NAV can indicate performance but only under a specific condition. We discuss this condition and the factors that influence NAV in the following section.

What factors influence the NAV?

Fundamentally, NAV is just a number. This number is pulled in different directions (up or down) by several factors discussed below.

Age of the fund scheme

A mutual fund scheme’s NAV starts at ₹10. Over time, as the value of its holdings increases, its NAV increases.

So, the NAV of even a liquid fund with a long existence can have greater NAV than an equity fund with a considerably shorter existence.

Consider the following as of August 2023:

Fund scheme - Plan - OptionAUMReturns since inceptionNAV
ICICI Pru Flexi Cap - Direct - Growth₹11,94814.28%₹13.29
Axis Flexi Cap - Direct - Growth₹11,35813.33%₹20.74

Disclaimer: Above schemes are chosen randomly for illustrative purposes only. They are not and should not be construed as investment recommendations or advice.

As you can see, both the flexi cap funds above have similar AUMs and similar returns since inception. However, ICICI Pru Flexi Cap Fund’s age is 2 years while Axis Flexi Cap Fund is 5 years 8 months old. This has resulted in Axis Flexi Cap Fund having a considerably higher NAV than ICICI Pru Flexi Cap Fund.

Plan and option of the scheme

The NAV of the regular plan is lower than the NAV of the direct plan of the same scheme. 

This is because regular plans pay out commissions to MFDs, and hence have a higher liability than direct plans, which pay no commissions. This results in slower growth in NAV of regular plans; hence, they are lower than direct plans.

The NAV of the IDFC option is lower than the NAV of the growth option of the same scheme.

The IDCW option pays out the profits and income the underlying assets generate back to the investors regularly. However, the growth option doesn’t pay out the profits and income. It instead reinvests them into the scheme. This results in a lower NAV of the IDCW option.

As of May 2023, here are the NAVs of IDCW and growth options of a sample fund:

Fund schemePlanOptionNAV (rounded off)
Axis Bluechip FundRegularGrowth₹44
Axis Bluechip FundRegularIDCW₹16

Disclaimer: The NAV changes every day. Depending on when you are reading the article, the NAV can be very different from the numbers illustrated above.

As you can see, the IDCW option’s NAV is substantially lower than the NAV of the growth option.

It is clear that comparing the NAVs of two schemes to determine the better performer will almost always be futile. Because NAV by itself says very little about a scheme and comparison will make sense only if the following conditions are met:

  1. Both schemes belong to the same category (for example - equity) and sub-category (for example - large cap) since inception
  2. Both schemes were launched on the same date with the same starting NAV (generally ₹10)
  3. Both schemes are under the same plan (for example - direct) and the same option (for example - growth)

Only and only if all the above conditions are met can NAVs be compared to determine which fund scheme performed better (the one with the higher NAV).

Mutual Fund NAV: Frequently Asked Questions

What is the full form of NAV in mutual funds?

The full form of NAV in mutual funds is Net Asset Value and refers to the price of 1 unit of a mutual fund scheme.

Should I consider the NAV when selecting a mutual fund for investment?

No, NAV should not be considered when selecting a mutual fund for investment. It has no information about the future performance of the mutual fund. Factors like suitability, financial goals, fund manager experience and fund risk should be considered. It is recommended to consult a financial advisor before selecting/investing in a mutual fund scheme.

If I transact on Saturday/Sunday, what day would NAV be applicable?

If you buy or sell a mutual fund scheme on Saturday/Sunday, the next trading day (usually Monday) NAV would be applicable.

Which mutual funds have a real-time NAV?

No mutual funds have a real-time NAV. However, in the case of ETFs, you can see the buying/selling price of the ETF units that trade on the exchange but not in the case of other mutual fund schemes.

Why is the NAV of a mutual fund scheme’s direct plan higher than the NAV of regular mutual funds?

The NAV of direct mutual funds is typically higher than the NAV of regular mutual funds because direct mutual funds do not have distribution fees included in their expenses. Hence, the expense ratio (a liability) of direct plans is lower and this results in a better performance than the scheme’s regular plan.