What is NAV in mutual funds and how is it calculated?
NAV is the per-unit price of a mutual fund, but it is not your return. Here is what it is, how it is calculated, why a lower NAV is not a discount, and the one number that actually matters.
Open any mutual fund page and the first number you see is the NAV. It is usually printed in large type at the top: ₹312.45, or ₹48.02, or ₹1,214.70. It is the number apps put in the headline, and it is the number most investors glance at before deciding whether a fund looks expensive or cheap.
Here is the thing most people miss: NAV is not your return. A lower NAV is not a discount. A higher NAV is not a sign of quality. NAV is simply the price of one unit of the fund at the end of the day, and the only thing it tells you, on its own, is what it costs to buy one unit and what you get back when you sell one.
This post is the plain-English version of what NAV is, how it is calculated, why a ₹20 NAV fund is not cheaper than a ₹200 NAV fund, and the one number you should actually look at instead.
What NAV stands for
NAV is short for Net Asset Value. It is the value of one unit of a mutual fund. When you invest ₹10,000 in a fund with an NAV of ₹100, you receive ₹10,000 ÷ ₹100 = 100 units. When you redeem, you get units × the redemption-day NAV back.
The formula is the same for every mutual fund in India:
> NAV = (market value of the fund's assets − fund's liabilities) ÷ number of units outstanding
- Assets are the securities the fund holds (stocks for an equity fund, bonds for a debt fund, gold for a gold fund) plus any cash and receivables.
- Liabilities are what the fund owes: unpaid expenses, pending redemptions, accrued charges.
- Units outstanding is the total number of units held by all investors combined.
The NAV is computed at the end of each business day, after the stock market closes. That is why you can buy and sell at the same NAV all day, regardless of when you place the order.
A worked example, in rupees
Say a small equity fund holds three stocks and some cash:
| Holding | Market value |
|---|---|
| Stock A | ₹50,00,000 |
| Stock B | ₹30,00,000 |
| Stock C | ₹20,00,000 |
| Cash | ₹5,00,000 |
| Total assets | ₹1,05,00,000 |
The fund owes ₹5,00,000 in pending expenses and accrued charges, so its liabilities are ₹5,00,000.
- Net assets = ₹1,05,00,000 − ₹5,00,000 = ₹1,00,00,000
- Units outstanding = 10,00,000
- NAV = ₹1,00,00,000 ÷ 10,00,000 = ₹100.00
Tomorrow, if the market rallies and the stocks gain 5%, the assets rise to ₹1,10,00,000 (before new liabilities). Net assets become roughly ₹1,05,00,000, and NAV rises to about ₹105.00. The fund made 5% in a day, and the NAV reflects it.
The math is identical for every fund. The reason NAVs differ so widely across funds is not that one fund is "worth more" per unit, but that funds launch at different NAVs (usually ₹10) and grow, or pay dividends, at different rates.
Why a lower NAV is not a discount
This is the single most common misconception. Investors see a fund at ₹20 and think "cheap", and a fund at ₹200 and think "expensive". That is wrong, and here is why.
Consider two funds that hold the exact same underlying portfolio of stocks. Fund X has an NAV of ₹100. Fund Y has an NAV of ₹20, purely because it launched with more units or paid out dividends in the past. If you invest ₹10,000:
- Fund X gives you 100 units at ₹100.
- Fund Y gives you 500 units at ₹20.
If the underlying stocks rise 10%, both funds rise 10%:
- Fund X: each unit goes to ₹110, your ₹10,000 becomes ₹11,000.
- Fund Y: each unit goes to ₹22, your ₹10,000 becomes ₹11,000.
The NAV level made no difference. Both returned the same 10% because the underlying portfolio returned 10%. The ₹20 fund did not give you a better deal, and the ₹200 fund is not richer per rupee invested.
The only time NAV level matters is for the number of units you hold, which matters for nothing except computing your value. What matters is the percentage change in NAV over your holding period, which is your return.
NAV vs your actual return
Your actual return is not the NAV, it is the percentage change in NAV between when you bought and when you sell (adjusted for any dividends).
- If you buy at ₹100 and the NAV rises to ₹130, you made 30% (before exit load and taxes).
- If you buy at ₹20 and the NAV rises to ₹26, you made 30% too.
- If you buy at ₹200 and the NAV falls to ₹180, you lost 10%.
The NAV number alone is meaningless for return. It is the movement that matters, which is why the honest number for a portfolio is not the NAV at all. It is the XIRR, the annualised return that accounts for the timing of every rupee you put in. NAV is a unit price; XIRR is a return. The difference between the two is covered in our XIRR vs CAGR vs Absolute Returns post.
What NAV does not tell you
NAV is a snapshot of one unit's value at market close. It does not tell you:
- Whether the fund is good. A fund with a high NAV can be a bad investment, and a fund with a low NAV can be excellent. The NAV is a price, not a score.
- What the fund holds. Two funds with the same NAV can hold completely different portfolios with different risk levels.
- How the fund has performed. The NAV level says nothing about whether returns were earned recently or over a decade.
- How risky the fund is. NAV does not reflect volatility, drawdowns, or credit risk in a debt fund.
The signal you actually want is the fund's return history, its risk-adjusted score, and its expense ratio, not its NAV. Our live rankings score every fund in its category on multi-period returns and risk, which is the number that survives an apples-to-apples comparison.
NAV, expense ratio, and Direct vs Regular
The NAV you see already has the day's expense ratio charge netted out. The expense ratio is the annual cost the fund charges to run itself, and it reduces the fund's net assets before the NAV is computed.
That is why a Direct plan and a Regular plan of the same fund show slightly different NAVs. The Direct plan has a lower expense ratio (no distributor commission), so it nets out less, and its NAV grows a little faster over time. Two investors in the same fund with the same return will end up with different values purely because of the expense ratio difference. The direct-vs-regular gap is one of the quiet ways returns leak away, and it is worth understanding before you pick a plan.
The bottom line
NAV is the per-unit price of a mutual fund, computed as net assets divided by units outstanding, at market close each day. It tells you what you pay to buy a unit and what you get back when you sell one.
NAV is not your return, and it is not a measure of quality. A lower NAV is not a discount, and a higher NAV is not better. The number that actually matters is the percentage change in NAV over your holding period, and for a portfolio built with an SIP, the honest number is the XIRR, not the NAV.
If you want to see the return your own units have actually earned, upload your CAS to the FinvestR-Agent. It reads every lot, computes the per-lot and portfolio-level XIRR, and tells you which of your holdings are beating their category and which are drifting, all from the NAV history and your cash flows.
What to read next
- XIRR vs CAGR vs Absolute Returns - the three return numbers on your statement, and which one is honest.
- How to start investing in mutual funds in India - the 10-minute flow for going from zero to your first SIP, where NAV and units come together.
- Best mutual funds to invest in India 2026 - the pillar shortlist, with the current top picks in every core category.
- The monthly mutual fund rankings - the live top-10 in every category, refreshed monthly.
Frequently asked questions
Is a lower NAV better because it is cheaper?▾
No. NAV is a unit price, not a price-to-value. Two funds with identical portfolios can have different NAVs simply because one started at ₹10 and the other at ₹100, or because one paid dividends and the other reinvested. A ₹20 NAV fund is not cheaper than a ₹200 NAV fund. What matters is the return both deliver on the money you invest, which is the percentage change in NAV, not the NAV level itself.
How is mutual fund NAV calculated?▾
NAV is (market value of all securities + cash and receivables - liabilities) divided by the number of units outstanding, computed at the end of each business day. For equity funds, the securities are marked to market at the day's closing prices. The formula is the same across all funds and all AMCs, which is why NAV is comparable within a category once the expense ratio is netted in.
Does NAV include the expense ratio?▾
Yes, implicitly. The NAV you see already has the day's expense-ratio charge netted out, because the expense ratio reduces the fund's net assets before the NAV is computed. A Direct plan and a Regular plan of the same fund will show slightly different NAVs because their expense ratios differ. Over time, the higher-TER plan's NAV grows a little slower.
Why does the NAV change every day?▾
Because the securities the fund holds change price every day, and the fund may also have intraday cash flows from investors buying and selling units. The NAV is recomputed at market close each business day. For a liquid fund it barely moves; for an equity fund it can swing several percent on a volatile day.
Is a higher NAV fund better than a lower NAV fund?▾
No. A higher NAV just means the fund has grown or has not paid dividends. It tells you nothing about whether the fund is a good investment. The only use of NAV level is to confirm a fund exists and to compute units bought or sold. The quality signal is the fund's return history and its risk-adjusted score, not the NAV.
Can NAV go below ₹10 or reach zero?▾
NAV can go below its launch value of ₹10 if the fund's portfolio falls enough (a debt fund after a credit event, an equity fund in a prolonged crash), but it cannot reach zero in practice because the fund would be wound up long before. Equity funds can fall 30-50% in a severe bear market, which drops NAV sharply but does not make the fund worthless.
Does a fund split or reverse-split affect my investment?▾
No. A fund that declares a unit split (say 1:2, doubling the units) halves the NAV so your total value is unchanged. A reverse-split does the opposite. In India, some funds do a reverse split (unit consolidation) to bring NAV into a preferred range. Your invested amount and your holdings' value are unaffected; only the number of units and the NAV change in proportion.
See your portfolio the way it should be seen.
Try the 1-min Goal Check