KNOWLEDGE CENTRE Mutual Fund Basics / What Is A Mutual Fund’s Net Asset Value (NAV)?
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What Is A Mutual Fund’s Net Asset Value (NAV)?


Mutual funds are one of the best investment options for regular investors. But how do you calculate how many units of mutual funds you have bought or how much returns has your mutual fund investment generated or what is the actual worth of your mutual fund investment?

This is where mutual fund NAV come into the picture. NAV is the cost of one unit of a mutual fund. The cost is derived by dividing the pooled money in the mutual fund by the number of units of the mutual fund. A mutual fund’s NAV can be derived on a daily, weekly or monthly basis. In India, it is calculated at the end of the market day since the stocks and bonds are flexible and change every day affecting the price of the NAV.

How To Calculate NAV Of Mutual Fund?

Do you rely on your money manager for the investments? Maybe it is time you understand more about the investments made by yourself first. For example, how does Net Asset Value (NAV) affect the mutual fund investments?

First, we will derive the formula for calculating the NAV of a mutual fund. The definition of NAV is the value of fund assets less the value of its liabilities, divided by the total number of units of the mutual fund. Since the NAV price is calculated at the end of each business day, the price while buying a mutual fund is the previous day’s price. The approximate profits/losses during a certain period can also be calculated by comparing the previous NAV with the current NAV of the mutual fund. Although, do keep in mind that comparing two different mutual funds based on their NAV is incorrect since either way you are investing the same of money in either fund.

Net Asset Value Calculation: Formula

Net Asset Value = (assets – liabilities) / total number of units

Understanding Net Asset Value

Let us take an example here to understand NAV calculation better.

John wants to make an investment in the mutual funds. But whenever he talks to his friends, a term called “NAV” pops up. After doing a little research, he understood the term and the meaning of NAV. Net Asset Value per unit is the price of one Mutual Fund.

Now, John makes an investment in the Mutual fund called X. As of today, the total value of (assets – liabilities) is 100 Crores and the “total number of units” held by many investors is 10 Crores. Hence the Net Asset Value of Z for that day will be Rs. 10. Hence, if John invests Rs 10,000 in Mutual Fund X, he will get 1000 units of Mutual funds since the NAV of the Mutual fund is Rs 10 today.

After a few days, the NAV goes up at Rs 12. John decides he wants to sell his 1000 units. Hence, 1000 units X Rs. 12 = Rs. 12,000. John will get Rs. 12,000 as his profit.

Does NAV Matter While Buying A Mutual Fund Scheme?

In the corporate world, Net Asset Value alone cannot tell the performance of the company and is only to check the ratios. For an individual, Net Asset Value of a fund is irrelevant because it represents the market value of the investment and not the market price.

One can misunderstand the Net Asset Value for Stock Price. Mutual Fund NAV cannot indicate the performance of the mutual fund, unlike a stock price. If you are planning to invest in a mutual fund, do not let the NAV be the deciding factor for the shortlisting.

Investors are attracted towards low NAV because of the misconception that money can provide more units which will be good when the fund declares a dividend.

Another misconception is that the higher value NAV mutual funds have maxed out their potential and no longer lucrative. But, at the end, it is the performance of the fund that matters and not the Net Asset Value. For example, a growth of 50% with NAV of 50 is the same as the 50% growth with NAV of 500.

So next time, make an informed decision while investing in mutual funds and not by merely relying on the mutual fund NAV.


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