What is NAV (Net Asset Value)?

Key Takeaways

• NAV is the current price of the mutual fund’s holdings and is determined by subtracting the fund’s liabilities from its assets. This NAV is then divided by the number of outstanding shares or units to calculate the per-share NAV.

• Since the fund invests in various securities whose values fluctuate daily, the NAV of the mutual fund also fluctuates.

• If the securities held by the mutual fund perform well, the NAV per unit increases, whereas in the case of underperformance, the NAV per unit declines.

• In funds with dividend payout, when dividends are paid out, the NAV of the fund falls by the amount of the dividend distributed.

Introduction

NAV (Net Asset Value) reflects the current market value of the fund’s holdings, making it an essential element of mutual fund investments. The NAV of a mutual fund unit fluctuates daily based on the current market value of the underlying assets.

Many investors look at the current NAV of a mutual fund unit to assess the fund’s future performance, which is not the right approach, as NAV is just a snapshot of the fund’s per unit market value.

In this article, you will understand the concept of NAV in detail so you can make informed investment decisions.

What Is a Net Asset Value (NAV)?

Net Asset Value (NAV) is the current value of a mutual fund unit. It is calculated by subtracting the fund’s liabilities from its assets and dividing the result by the number of outstanding units.

As a mutual fund pools money from many investors and invests it across various securities, the NAV changes daily to reflect the value of the underlying assets.

How Does NAV Work?

NAV is the price at which investors buy and sell mutual fund units. It is calculated at the end of each business day, based on the closing prices of the underlying securities.

When markets perform well, the NAV of mutual fund units rises. Conversely, when the market is in a downtrend, the NAV of mutual fund units declines.

NAV Formula

NAV represents the daily value of your mutual fund investments and determines the exact price at which you can buy or sell your units.

NAV Formula: Total Assets – Total Liabilities / Total Number of Outstanding Units

Total Assets is the sum of the current market value of all investments, such as stocks and bonds, held by the fund, along with cash and accrued income.

Total Liabilities is the sum of all expenses, such as management fees, custodian fees, and other operating expenses.

Total Number of Outstanding Units is the total of all units currently held by the mutual fund’s investors.

While the formula for calculating NAV is standard for all mutual funds, open-ended funds transact daily at the current NAV, but closed-ended funds are traded on exchanges at market price, which may be at a premium or discount from the NAV, depending on market demand and supply.

NAV Performance Under Market Conditions

NAV of mutual funds, especially equity funds, is significantly impacted by the broader market performance. The first quarter of 2026 experienced high volatility in the equity market, significantly impacting mutual fund investors as the value of the MF units plummeted, with many reporting a ~10% loss in their portfolio. This fall in the equity market was driven by macro-economic events such as the US-Iran war, impacting oil and gas supply, and the depreciation.

The blaring red in the portfolio concerned many investors, compelling them to compare mutual fund returns to safe yet lower return FDs. But it's important to understand that mutual funds are market-linked investments and carry certain risks.