NAV stands for Net Asset Value – the per-unit price of a mutual fund, worked out as everything the fund owns, minus what it owes, divided by the number of units investors hold. It is simply what one unit is worth on a given day. It is not a signal of whether a fund is cheap, expensive, or good value.
That last point trips up more beginners than any other. A fund with a ₹10 NAV feels like a bargain next to one at ₹500. It isn't. The number tells you almost nothing about the investment.
What does NAV mean?
When you invest in a mutual fund, your money is pooled with thousands of other investors and used to buy shares, bonds or other assets. That pool is divided into equal slices called units. NAV is the current worth of one such unit.
If a fund's holdings are worth ₹100 crore after subtracting expenses, and there are 10 crore units, each unit's NAV is ₹10. Invest ₹10,000 and you receive 1,000 units. As the underlying holdings rise or fall, so does the NAV, and so does the value of your units.
How is NAV calculated?
The formula is straightforward:
NAV = (Total assets − liabilities and expenses) ÷ Total units outstanding
Unlike a stock, which ticks up and down live all day, for most mutual funds NAV is struck once per business day. After markets close, the fund house values every holding at the day's closing price, subtracts costs, divides by units, and publishes a single NAV for that day. (Liquid and overnight funds are the exception, declaring a NAV on every calendar day, including weekends.) Which day's NAV applies to your purchase or redemption depends on the scheme's cut-off time.
Why a low NAV does not mean a cheaper fund
This is the misconception worth killing. Two funds holding the exact same portfolio will grow your money identically, no matter what their NAV numbers are. Watch what happens when both rise 20%:
Same money, same growth, different NAV
Laid out fully:
| Fund A | Fund B | |
|---|---|---|
| NAV at purchase | ₹10 | ₹500 |
| Units for ₹50,000 | 5,000 | 100 |
| NAV after 20% growth | ₹12 | ₹600 |
| Value after growth | ₹60,000 | ₹60,000 |
Fund A gave you far more units, but each is worth less – and both ended in exactly the same place. The number of units is cosmetic. Only the percentage change matters.
Does NAV tell you anything at all?
A little, but less than people think. A higher NAV usually just means a fund is older and has compounded for longer – a mark of history, not of being overpriced. It does not tell you whether the fund is well managed or right for your goal.
What NAV is genuinely useful for is the mechanics: it is the price at which your units are bought and sold, and tracking the change in NAV over time (as a percentage) shows how the fund has performed. Read the movement, not the level.
Does NAV fall when a fund pays out?
Yes, and it worries first-time investors who think they have lost money. When a fund distributes an IDCW payout (the option once called "dividend"), that cash leaves the fund, so the NAV drops by roughly the amount paid out. You have not lost anything – the value simply moved from inside the fund into your bank account.
This is also why a payout option is not "extra" money. A growth-option fund keeps that amount invested and lets the NAV keep compounding instead. Same underlying performance, different plumbing – and another reason the NAV number alone never tells the full story.
Related NYVO guides
- What is a SIP? How Systematic Investment Plans Work – how each monthly instalment buys units at that day's NAV.
- What is an NFO (New Fund Offer)? What the ₹10 Price Means – why a fund's ₹10 launch price is a starting line, not a cheaper entry.
- CAGR Full Form: What It Means and How to Read It – turning NAV movement over years into a single growth rate.
- SIP vs Lumpsum: Which Actually Wins in Indian Markets? – why buying units across many NAVs can beat buying at one.
The next time a fund's ₹12 NAV tempts you over a ₹480 one, stop. You are looking at a price sticker, not a value. What builds wealth is the percentage that number climbs – and that has nothing to do with where it started.
