What Is NAV in Mutual Funds and Does It Matter?

Short answer: Net Asset Value is the per-unit price of a mutual fund, calculated daily from the value of its holdings, and a low or high NAV by itself says nothing about whether a fund is cheap or a good buy.

How NAV Is Calculated

Net Asset Value is the total value of everything the fund holds, minus its liabilities, divided by the number of units outstanding. It is computed at the end of each trading day, so all buyers and sellers on a given day transact at the same NAV, based on that day's closing prices.

NAV Is a Price, Not a Valuation

A common myth is that a fund with a low NAV is 'cheaper' and has more room to grow. That is wrong — NAV simply reflects how the fund's underlying assets have moved since launch. A fund at a high NAV and one at a low NAV can deliver identical future returns; what matters is the percentage growth, not the rupee level.

Why New Fund Offers Look 'Cheap'

New funds often launch at a round starting NAV, which can tempt people into thinking they are getting a bargain. In reality you are buying an untested portfolio. An existing fund with a strong record and a higher NAV is usually the wiser choice than a new one at a low starting price.

NAV and Your Units

When you invest, your amount divided by that day's NAV gives the units you receive. As the NAV rises, the value of your fixed number of units grows. With SIPs, you buy units at varying NAVs over time, which is how rupee-cost averaging works.

What to Focus On Instead

Ignore the absolute NAV when comparing funds. Look at the fund's returns over time, its risk level, expense ratio, consistency and how it fits your goal. The NAV number alone tells you almost nothing useful for decision-making.

Sources: SEBI Investor Education

This explainer was written by The Dispatch desk to answer a question readers commonly ask. It is general information, not personalised financial advice.