Everything You Need to Know About Mutual Fund NAV (Net Asset Value)

Published on December 15, 2022 | 5 min read

Key Takeaways

NAV (Net Asset Value) shows the net value of one unit of a mutual fund after accounting for its assets and liabilities.
NAV changes as the value of a mutual fund's investments and liabilities changes.
A low NAV does not mean a mutual fund is cheaper or better. Investors must compare returns, risks, and expenses before investing in a mutual fund.

NAV (Net Asset Value) is the value of one unit of a mutual fund scheme and is derived by subtracting its liabilities from the fund’s assets. Here’s everything you need to know about NAV in mutual funds. Unlike a share price, NAV is calculated based on the value of the scheme's investments and other assets.

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How Is Mutual Fund NAV Calculated?

The NAV of a mutual fund is calculated using the following formula:

NAV per unit = (Total Assets − Total Liabilities) ÷ Total Outstanding Units

Total assets include investments, cash, and other receivables. Total liabilities include the amounts the scheme owes.

For example, let's consider a mutual fund called MF-A, in which the value of all securities equals INR 1,000, the value of all receivables equals INR 100, and the value of all payables is INR 50, while the number of outstanding units is 100. The NAV of MF-A will be:

(1,000 + 100 - 50) / 100 = 1,050 / 100 = INR 10.50.

Why Does The Mutual Fund NAV Fluctuate?

A mutual fund's NAV can change daily because the value of its investments and liabilities may change.

A mutual fund may hold shares, bonds, and other investments. Their values can change because of market movements, interest rates, and other factors. These changes affect the fund's NAV. Changes in the prices of these assets directly affect the NAV of the mutual fund.

The following table illustrates the differences between NAV in mutual funds and share price.

NAV	Share Price
The NAV is calculated based on the value of securities.	The share price varies based on investor perceptions and the company's functioning.
The NAV is the value of one unit of a mutual fund, which holds many assets and securities.	A stock price reflects the market price of a company's share. It may be higher or lower than the company's estimated intrinsic value.
Mutual fund investors are given units of a mutual fund.	Equity investors are given a stake in the company in the form of shares.
The demand for a mutual fund doesn't alter the mutual fund's NAV.	Share prices are influenced heavily by the market forces of demand and supply.
The NAV is calculated after the market closes. It does not change continuously during market hours like stock prices.	Stock prices keep changing even during market hours.
Units of a mutual fund are allocated in values with up to three decimal places, and the NAV amount can come up to four decimal places.	Stocks and shares are not available in fractions, and share prices can only be valued with up to two decimal places.

Why Is The NAV Declared Daily?

Mutual fund NAVs are generally calculated for each business day. The NAV may change from one day to the next as the value of the scheme's investments and liabilities changes, but it does not have to be different every day. This helps ensure that investors buy or redeem units at a value based on the scheme's assets and liabilities. This supports fair treatment of investors who enter or leave the scheme.

For most mutual fund schemes, purchase applications submitted before 3 PM is likely to receive the same day's NAV, subject to the applicable cut-off rules and the availability of funds for utilisation by the scheme. Redemption requests received before 3 PM generally receive the same day's NAV, subject to the applicable rules.

However, if you decide to purchase or sell mutual fund units after 3 PM, the next applicable NAV generally applies, subject to the scheme type and applicable cut-off rules. Additionally, if the purchase or sale happens on a holiday, the NAV value will be the NAV of the next working day.

NAV is the net value of one unit of a mutual fund after accounting for its assets and liabilities. It helps investors understand the value of their mutual fund units when buying or selling. However, a low NAV does not mean a fund is better or cheaper. Before investing in any mutual fund, compare the fund's returns, risks, expenses, and investment goals to make an informed decision.

FAQs

What is the full form of NAV in a mutual fund?

The full form of NAV in mutual funds is Net Asset Value, which is the cost of one unit of a mutual fund.

What is the formula to calculate the NAV of a mutual fund?

The formula to calculate the NAV of a mutual fund is as follows:

(Value of all securities held + value of all receivables - value of all payables) / Number of mutual fund units

Is the NAV of a mutual fund important to the investor?

The NAV of a mutual fund is important because it indicates the value of each unit, but it does not, by itself, help investors compare mutual funds.

About Author

Mariyam Sara

Sub-Editor

holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.

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About Upstox

Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.