What Is NAV in Mutual Funds? (2026)

As a beginner learning about mutual funds, the very first thing which becomes a challenge is understanding what NAV means. One finds everyone using this term on their phones while comparing and investing in various funds. "This fund has a low NAV, hence is cheaper." There is logic in it. However, such thoughts make up some of the biggest misconceptions for retail investors out there.

In this article, let us understand the basics of NAV, how it is calculated, how many units do we get, and finally, the biggest myth which needs to be destroyed when comparing mutual funds. When you know it clearly, the way you compare funds will change forever.

Before getting started with NAV, it is important to understand what mutual funds are.

1. What NAV Actually Means

The meaning of NAV is Net Asset Value.

In layman terms, NAV is the cost of one unit of a mutual fund on a particular day.

Imagine a mutual fund to be a big basket in which thousands of investors put their pooled funds into. The fund manager invests the pooled amount into some security or securities such as shares, bonds, or both. The total valuation of all the assets at the end of the day minus the liabilities is then divided by the total outstanding units of the fund, and the outcome is its NAV.

Thus, the formula for calculating the same is as follows:

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

For example, consider the case where the market value of the fund's portfolio is ₹100 crore, the payable fees and expenses are ₹2 crore, and the outstanding units total 10 crore units, then the NAV would be:

(₹100 cr - ₹2 cr) / 10 cr units = ₹9.80 per unit

All funds that fall under SEBI regulations and are quoted on AMFI publish this figure every business day.

Lesson: NAV simply means the unit-wise value of the portfolio on any particular day.

2. How NAV Is Calculated — and When

The process of calculating NAV takes place after the close of trading sessions in the stock market. The fund houses tally up the closing prices of all the securities held by the fund, calculate the net asset value, reduce the number of any liabilities outstanding, and then divide it by the units outstanding. Afterward, the figures are published by the AMFI on their official website, usually by 11 PM on the same day of business.

It is vital for us to note that daily computation of NAV is an important aspect. Unlike stocks, where the stock price fluctuates throughout the trading session from minute to minute, NAV will have one single price per day. Whenever one buys or sells shares of a mutual fund, he/she does so based on the current NAV of the fund.

An important point here to note is that the NAV that will be applicable for your transaction has certain cut-off times. In simple words, it means that you will receive the applicable NAV of the same day provided that you submit your application form along with the required funds before the prescribed cut-off time of SEBI.

Lesson: NAV is calculated once daily after market close. The exact NAV you get for a transaction depends on when your application and funds are received — not just when you clicked “invest.”

3. How Your Units Are Calculated

Now here’s where it clicks for most people. When you invest money in a mutual fund, you don’t receive a fixed number of units upfront. The number of units you get depends on the NAV on your transaction date.

The formula is:

Units Allotted = Investment Amount ÷ Applicable NAV

So if you invest ₹10,000 in a fund with a NAV of ₹50:

₹10,000 ÷ ₹50 = 200 units

If you invest ₹10,000 in another fund with a NAV of ₹500:

₹10,000 ÷ ₹500 = 20 units

In the first case you get 200 units; in the second, you get 20. Does the first fund give you more for your money? No. Both represent the same ₹10,000 of value. The number of units is just a function of the price per unit on that day.

Your total value at any point is always: Units Held × Current NAV

Lesson: The number of units you hold is not a measure of wealth. Your wealth is units × NAV. More units at a lower NAV is not “more” than fewer units at a higher NAV, if the investment amount is the same.

4. NAV Is Already Net of the Expense Ratio

One surprising fact for many people investing in mutual funds is that the expense ratio is automatically included in the NAV itself. There are no additional or separate costs charged above the daily NAV.

The fund management company automatically charges the expense ratio on a daily basis in the proportion of the total assets to calculate the net asset value. This means that the NAV quoted by any company is the net amount, after accounting for all the operating expenses. This is literally the meaning of Net Asset Value.

It is, therefore, essential to consider the expense ratio of two different mutual funds while comparing them, as it automatically eats into your returns. To know more about how expense ratio affects you, learn What is Expense Ratio In Mutual Funds?

Lesson: The NAV you see is already net of the fund’s expense ratio. There’s no hidden fee on top — but a higher expense ratio does silently drag down NAV growth compounded over years.

5. The Biggest NAV Myth — Debunked

This is the one I most want you to remember.

The myth: “A fund with a lower NAV is cheaper, or gives better value, than one with a higher NAV.”

I hear this constantly. The reasoning sounds intuitive: ₹10 NAV is “cheaper” than ₹500 NAV, so I can buy more units, so I’ll get more returns. This is completely incorrect — and I’ll show you exactly why.

ILLUSTRATIVE EXAMPLE — not a prediction or recommendation

Suppose you invest ₹1 lakh in Fund A (NAV: ₹10) and ₹1 lakh in Fund B (NAV: ₹500). Both funds invest in identical portfolios and grow at 12% over one year.

The NAV’s absolute rupee level made zero difference to your outcome. What drove the return was the percentage growth of the underlying portfolio — 12% in both cases.

The NAV of the fund depends on its past. When was the fund started? How have market conditions changed after launching the fund? Were there any dividend payments? A fund that was started in 2005 and showed good gains obviously would have a higher NAV in 2026. A fund that was started last month would have an NAV close to ₹10 (most funds start with an NAV of ₹10). Selecting a newer fund simply because it has a “low NAV” doesn’t make sense. It is a lazy approach which takes into account none of the important parameters like the quality of the fund portfolio, fund manager’s experience, expense ratio, and compatibility of the fund with your investment objectives.

For more details on how actual returns from a mutual fund investment are measured, read What is CAGR in Mutual Fund.

Lesson: A low NAV does not mean a fund is undervalued or a better buy. NAV’s absolute level carries no signal about future performance. Focus on percentage growth — CAGR — not the rupee price of a unit.

Frequently Asked Questions

Q: Does a higher NAV mean a fund is overpriced? No. A high NAV simply means the fund has been around longer and/or its portfolio has grown substantially over time. It says nothing about whether the fund is overpriced. What matters is whether the underlying portfolio is well-managed relative to its benchmark and its cost.

Q: What happens to NAV when I redeem (sell) my units? When you redeem, the fund buys back your units at the applicable NAV on your redemption date (subject to cut-off timing rules). If the NAV has grown since you invested, you make a gain. If it has fallen, you incur a loss. Any applicable exit load is deducted before calculating your redemption proceeds.

Q: Does NAV change during market hours? No. Unlike stocks, mutual fund NAV is fixed once per business day — calculated after the markets close. During trading hours, the underlying portfolio’s market value is changing, but the official NAV you transact at is only determined at end of day.

Q: Is a fund with NAV of ₹10 a new fund? Usually, yes. Most new fund offers (NFOs) in India launch at a face value of ₹10 per unit. But “new” does not automatically mean “better opportunity.” A fund’s starting NAV tells you when it launched, not how it will perform.

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