What is Net Asset Value (NAV)? Is it Relevant to Investors?

by Rishabh Jain
NAV- Net Asset Value

Net Asset Value(NAV) can be referred to as the per-unit market value of a Mutual Fund. In simple words, it is the price at which you can buy or sell one unit of a particular Mutual Fund.

For example, If the NAV of a Mutual fund Scheme is Rs. 25. Then the price that you have to pay to buy one unit of that fund is Rs. 25 and in the same manner, you would be able to sell one unit of that fund at Rs. 25.

Calculation of NAV

Since we understood the meaning of NAV, let us now understand how NAV is calculated. NAV of a Fund can be easily calculated by the investors. To calculate the NAV, you have to subtract the liabilities of that Fund( management expense/redemption claims) by the Assets of the Fund (investments that it holds, cash, etc) and we will get the Fund’s Net Asset Value(NAV). But since NAV is calculated per unit wise. Therefore, the Net Asset Value so obtained will be divided by the Total Units Issued by the Fund and we will get NAV per unit.

In Numerical terms, the Formula will be

NAV= [ (Assets – Liabilities)/ Total no. of units issued ]

Let’s take an example to make it more clear –

Suppose you invested in a Fund that invests in shares of different companies. Let’s say it invests in two shares, Tata Motors and Reliance. It invested 25 Cr in Tata Motors and say 20 Cr in Reliance and has a cash balance of 5 Cr with itself.

Total Liabilities(expenses) = Rs 27,400

The total no. of units in the market = 2 Cr units

Total Assets = Tata Motors+Reliance + Cash = 25 Cr + 20 Cr + 5Cr = 50 Cr

So, NAV = Rs. [( 50 Cr – 27,400) / 2 Cr units] = Rs. 25

When and How the NAV gets updated?

The NAV changes daily. We know, that the Mutual Fund invests in different financial instruments like shares, bonds, etc. So, because of the changes in the value of these financial instruments, the value of NAV also changes as these are the assets of Mutual Fund. The NAV gets updated at the end of each working day after the market shuts.

In Mutual Fund you can place the order to buy or sell the units at any time during the day. Though, there are certain implications on the value of the NAV that you would be buying or selling at for equity/debt funds and liquid funds. For Equity and Debt Funds if you place the order to buy/sell the units before 3 P.M., then your order will be executed at the NAV of the end of that day itself. Whereas if you place the order after 3 P.M. then the order will be executed at the NAV of the end of the next working day.

Now, for Liquid Funds, there is a change in time. If you place the order to buy/sell the units of Liquid Fund before 1:30 P.M., your order will be executed at the NAV of the end of that day itself. And if you place the order after 1:30 P.M., then the order will be executed at the NAV of the end of the next working day. That is the only difference between Equity/Debt Funds and Liquid Funds.

Is NAV the same as Stock Price?

Well you might assume by now that they both are same as they both define the price of the particular investment. But they are different in certain ways. Confused? Let me clear it out for you.

The NAV is considered as the price of the Mutual Fund Scheme and the Stock price is considered the price of the share of a particular company.

The share price of a company can be determined by many factors like the demand and supply for the share i.e. the number of people who wants to buy or sell that particular share, then the profit/loss generated by the company, the amount of assets that it holds, and so on. Whereas the NAV of the Fund does not change on the basis of demand and supply. It only depends on the performance of the securities held by it (i.e. the assets that it holds).

Relevance of the NAV to Investors

Investors should not be focusing on the NAV factor while investing in Mutual Funds. As some investors might feel that they should be investing in funds that have a low NAV as it is a cheap investment. Well, that’s not true as NAV only defines the number of units that will be allotted to you i.e. higher the NAV, lower would be the units allotted, and lower the NAV, higher would be the units allotted. A high or a low NAV has no role in selecting the Mutual Funds to invest in.

For example, Suppose there are two Funds, Fund A and Fund B. And you invested Rs. 10,000 each in both funds.

NAV of Fund A = Rs. 20

NAV of Fund B = Rs. 30

Units allocated :

Fund A = 500 units (10,000 / 20)

Fund B = 333.3 units ( 10,000 / 30)

Now, assume you earned a 10% return after a month of investing in both the Funds.

Therefore, the new NAV is :

Fund A = Rs. 22

Fund B = Rs. 33

As we can see that both the funds, Fund A and Fund B gave a return of 10% after a month but the only difference was the no. of units allocated to you. So, the NAv is irrelevant in choosing the Fund to invest in. Before investing in any Mutual Fund you should be checking different factors to consider before selecting mutual funds other than the NAV to get a clear picture.


NAV is only relevant in defining the no. of units that would be allotted to you. You should not rely on the NAV but should also look at the performance of the fund. It is not about how cheap is the fund but about how consistent are the returns. Even if you have to pay a little high amount but if that amount can generate significant returns then why invest in cheap Funds.


Should I invest in a Fund with high NAV?

The NAV of the fund does not have much significance when deciding to invest. Yes, you should invest in Fund with a high NAV if the other factors of that fund are good ( performance, fund manager, etc.).

Is NAV similar to Stock price?

The NAV and Stock price define the price of the particular investment. But they are quite different, as the stock price can change on the demand and supply of that share, whereas the NAV does depend on the demand/supply for that Fund.

Can the value of the Mutual Fund’s NAV drop like in case of Stocks?

Yes, it can. As we know that the NAV is the value of the securities held by the Fund. So any change in the shares held by the Mutual Fund will have an impact on the NAV. For example, If today the stocks held by the Fund performed well in the markets than yesterday then the NAV will also increase from the value it was yesterday.

When is NAV updated?

The Net Asset Value (NAV) gets updated at the end of each day after the market shuts. The NAV changes on a daily basis.

You may also like