What Is Mutual Fund NAV? 3 Misconceptions About NAV

Many investors are unaware about Mutual Fund NAV or they do not have the right information. If you invest in Mutual Funds, then it is very important for you to understand the Mutual Fund NAV. Through this article today we will answer all the questions related to Mutual Fund NAV. In this you will understand what is Mutual Fund NAV, what are the misconceptions related to NAV and Mutual Fund NAV calculation.

What Is Mutual Fund NAV 3 Misconceptions About NAV credityatra

What is Mutual Fund NAV?

The full form of NAV is Net Asset Value. NAV is also called the book value of a unit of a mutual fund. Just like the value of any one share or stock, so is the NAV of any mutual fund scheme. On the basis of this NAV, the units of mutual funds are allotted to the investor.

The value of NAV or Net Asset Value varies at the end of each trading day.

We will further understand Mutual Fund NAV through the formula, before that, we will understand what is Mutual Fund Unit.

What is Units in Mutual Funds?

Due to the high investment amount, mutual fund schemes are divided into units. Units are issued by the fund house to the investors based on the investment made by them. This unit is used to find the value of your current investment.

How are units calculated in Mutual Funds?

You can calculate the number of units allotted to you on your mutual fund investment with this formula.

Units = Investment made by the investor ÷ NAV

It is worth noting here that the NAV of any Mutual Fund is the value of only one unit. The concept of the unit will be completely clear to you from the table given below-

SBI Mutual Fund  HDFC Mutual Fund 
Investment made by you Rs 10,000 Rs 20,000
NAV of Fund Rs 20 Rs 25
How many units will you get 500 units 400 units

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How are NAVs calculated? (Mutual Fund NAV Calculation)

What Is Mutual Fund NAV 3 Misconceptions About NAV 2

The NAV of any mutual fund is the value or price of one of its units. A mutual fund is made up of money deposited by several investors. The money we deposit is managed by the fund manager. Fund managers in return for their expert services, charge us the cost in the form of expense ratio which can be up to a 2%. It is the fund manager who decides where he will invest the investor’s money. Generally the fund manager invests your money in stock market, corporates bonds, government bonds. The NAV of the Mutual Fund depends on the market returns of these stocks and bonds.

NAV = (Total Asset of Mutual Fund – Total Exp. and Liabilities of Mutual Fund) ÷ Total Outstanding Units


  • Total Asset of Mutual Fund = Stocks + Bonds + Cash
  • The Total Exp. and Liabilities of Mutual Fund = Management Fee or Expenses Ratio + Redemption Claims of Mutual Funds
  • Total Outstanding Units = Total units that are with the investors.

Let us understand the calculation of NAV with the help of an example-

In SBI Mutual Funds in 2020, many investors together deposited Rs 1,00,000. At that time this mutual fund company had total expenses or liabilities of Rs 10,000. A total of 5000 units were issued to all investors.

Here NAV (Net Asset Value) in 2020 will be = ( Rs 1,00,000 – Rs 10,000 ) ÷ 5000 = Rs 18

Suppose in 2025, the cost of investment of Rs 1,00,000 increases to Rs 1,80,000 and expenses Rs 20,000. Now what will be the NAV here?   

NAV in 2025 = ( Rs 1,80,000 – Rs 20,000) ÷ 5000 = Rs 32

How are the units allotted on SIP or Lumpsum?

You have understood the meaning of NAV. Now the question arises that how the units are allotted on the investment made by you. Whether you are doing SIP or lumpsum, whenever your money reaches the mutual fund company, units will be allotted to you on the basis of the NAV of that day.

Units are allotted to you by taking part of the present NAV in the investment made by you. For example, your SIP installment of Rs 5000 went and at that time the NAV of your scheme was 100. Here you will be credited 50 units.

What is the use of NAV or what is the importance of NAV? 

  • The current value of your portfolio is multiplied by the total credit units in your mutual fund portfolio and the current NAV.
  • Present Portfolio Value = Total units × Present NAV
  • Whenever buy or sell deals are done by an investor, they are done on the basis of NAV only.
  • NAV is used to calculate units while buying.
  • In a redemption transaction, the redemption value is determined only by the NAV.

Misconceptions Related To NAV

What Is Mutual Fund NAV 3 Misconceptions About NAV 1

Some of the misconceptions related to NAV are explained in the next 3 points.

1. Should NAV be considered while buying mutual funds?

Many investors consider mutual fund NAV and stock price to be the same. That means, as if a stock is overvalued, then it appears overvalued or buying a low value stock undervalued in the hope of getting higher returns.

But there is no point in checking the NAV before buying a mutual fund. Let us understand it with the help of a simple example.

Aditya Birla Sun Life Frontline Eq. Fund Franklin India Equity Fund 
Current NAV (as on 22.01.2021) 277.24 737.45
Fund Launch Date 30 Aug- 2002 29 Sep- 1994
1 Year Return 18.67% 23.06%
3 Year Return 6.92% 6.38%
5 Year Return 13.64% 12.80%

From this table you must have understood that NAV has nothing to do with fund selection. In the above example you can see that the NAV of Birla Sun Life is much lower than that of Franklin India Fund. But this does not mean that Aditya Birla Fund is undervalued and will give higher returns than Franklin India. Here both the funds have performed almost identically.

Hence it is not necessary to check the NAV at any time while buying Mutual Funds. Only past performance and returns are seen in evaluating Mutual Funds.

2. Should you invest in mutual funds with higher NAV?

The higher or lower NAV of any two or more mutual fund schemes is not related to the performance of any mutual fund. Like a share price, NAV can never be undervalued or overvalued. The simple reason for this is that NAV is not controlled by demand and supply. NAV is controlled only by AUM (Asset under Management).

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Therefore, it is not necessary to look at the NAV while choosing a mutual fund.

3. Does the NAV also fall like the stock price?

As you know that mutual funds do most of their investments in the stock market. The value of the stock changes continuously. If the value of the invested shares increases then the NAV will also increase and if the price of the shares decreases then the NAV will also fall. Thus the NAV fluctuates continuously depending on the performance of the stock market.

What is the difference between Stock Price and Mutual Fund NAV?

As we’ve mentioned earlier, there is no direct correlation between stock price and mutual fund NAV. Whenever you buy a share or stock, you buy it at its market price. Whereas in Mutual Funds the buying and selling takes place on the book value. In Mutual Funds, NAV is the book value.

The price of a stock changes every minute during the trading session. Whereas the NAV of the mutual fund is drawn only at the end of the trading day. According to the instructions of SEBI, every mutual fund house discloses by calculating the NAV of each of its schemes every day.

The value of a share depends on the demand and supply. But the value of NAV does not depend on the demand and supply of mutual funds.

How to see the NAV of a Mutual Fund?

If you also want to see the NAV of any mutual fund, then you can check the NAV on these platforms. From the website of Moneycontrol, Value Research, Fund House.

How is Investment Timing related to NAV?

According to the new SEBI rules, from February 1, 2021, the investor will be allotted the NAV of the day when the money reaches the mutual fund house. If you do any online transaction which is done before 3:00 PM of the trading day, then you will get the NAV of the same day.

If you have done the transaction after 3:00 AM then the NAV allotment of the next trading day will be done. In case of auto debit of SIP, the NAV of the day on which the money reaches the mutual fund company will be allotted.

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We have learned today that it is not necessary to give much attention to NAV, but still you must know its basic concept. Today through this article you understood what is Mutual Fund NAV, Mutual Fund NAV meaning and Mutual Fund NAV calculation.