When you start investing in mutual funds, one of the first terms you come across is NAV. But many new investors get confused — What exactly is NAV? and How does it affect my returns?
So, in this article, we’ll understand what is NAV in mutual funds and how it is calculated in a very simple and emotional way, so that even a beginner can easily connect and learn.
✨ Quick Summary: What is NAV in Mutual Funds?
NAV (Net Asset Value) is the price of one unit of a mutual fund. It is calculated by dividing the fund’s total assets minus liabilities by the total number of units. NAV changes daily based on market movements and shows the current value of your investment.
- Formula: (Total Assets – Liabilities) ÷ Total Units
- Updated: Every business day
- Tip: A lower NAV doesn’t mean better returns; growth in NAV matters more.
In short: NAV tells how much one unit of your mutual fund is worth today — it’s the real picture of your investment value.
The Simple Meaning of NAV
NAV means Net Asset Value. It tells you the price of one unit of your mutual fund. Imagine you buy gold — the price per gram tells you how much one gram of gold costs. Similarly, NAV tells you how much one unit of a mutual fund is worth today. So, if the NAV is ₹20, and you invest ₹2000, you will get 100 units of that mutual fund.
Why NAV Is Important for Investors
NAV is like the heartbeat of a mutual fund — it changes daily based on the value of the fund’s investments. When the stock market goes up, the NAV of equity mutual funds also increases. When the market falls, the NAV may go down too. Understanding what is NAV in mutual funds and how it is calculated helps you track your fund’s performance and make better investment decisions.
How Is NAV Calculated?
NAV = (Total Assets – Total Liabilities) ÷ Total Number of Units
Let’s understand with an example:
Suppose a mutual fund has total assets worth ₹500 crore, liabilities worth ₹10 crore, and 10 crore units issued to investors.
NAV = (₹500 crore – ₹10 crore) / 10 crore = ₹49 per unit
This ₹49 is the Net Asset Value or NAV of that mutual fund.
When Is NAV Updated?
NAV of a mutual fund is updated every business day — usually after the market closes. That means if you invest money in the morning, your purchase will be processed based on the NAV declared at the end of that day.
Common Misunderstanding About NAV
Many new investors think that a lower NAV means a cheaper or better fund. But that’s not true. NAV only tells the price per unit, not the value of the fund’s performance. Think of it like this — if two mutual funds have the same portfolio but one has a NAV of ₹20 and another ₹200, both can perform equally well. What matters is returns and fund management, not just NAV.
The Real-World Example
Suppose you start an SIP in HDFC Flexi Cap Fund. On the first day, the NAV is ₹50, so your ₹1000 SIP buys 20 units. Next month, the NAV becomes ₹55, and your ₹1000 buys 18.18 units. After a few years, when NAV rises to ₹100, your total investment grows based on the higher value per unit. So, what is NAV in mutual funds and how it is calculated directly impacts how your wealth grows over time.
How NAV Affects Your Returns
When you sell your mutual fund units, your profit or loss is calculated based on the difference between purchase NAV and redemption NAV. Example: If you bought at ₹20 and sell at ₹30, you earned ₹10 profit per unit — that’s a 50% return. So, higher NAV at redemption means higher returns.
Emotional View — Why Understanding NAV Matters
Money is emotional. When you invest your hard-earned savings, you want to know how it grows every day. Understanding what is NAV in mutual funds and how it is calculated gives you confidence and control. It’s not just a number — it represents your financial journey and progress toward your goals.
Key Points to Remember
- NAV stands for Net Asset Value.
- It represents the price per unit of a mutual fund.
- NAV changes every market day based on fund holdings.
- A lower NAV doesn’t mean better returns.
- Returns depend on how much NAV grows over time.
Final Thoughts
Now you clearly understand what is NAV in mutual funds and how it is calculated. It’s a simple concept, yet it plays a big role in your investment success. Next time you check your mutual fund statement, remember — each increase in NAV is a step closer to your dreams.
