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How to calculate the NAV of a mutual fund

You can calculate the NAV of a mutual fund by dividing the total net assets of the fund by the total number of units issued to investors.

When it comes to investing, certain terms have special significance. For mutual fund investors, net asset value (NAV) is one such term. Whenever you attempt to buy or sell mutual fund units, this acronym comes up.

In simple terms, NAV is the per-unit market value of a mutual fund. Read on to find out how to calculate the NAV of a mutual fund and more.

(Read more: What is a mutual fund?)

The NAV of mutual funds

Mutual funds pool the money collected from investors and reinvest it on their behalf in the securities market. NAV is the per-unit market value of all the securities held by a mutual fund scheme. If you are a mutual fund investor, the fund assigns units to you based on the amount you invest.

(Read more: What is NAV?)

The formula for NAV

We calculate the NAV of a mutual fund by dividing the total net assets by the total number of units issued. To get the total net assets of a fund, subtract any liabilities from the current value of the mutual fund’s assets and then divide the figure by the total number of units outstanding. The resulting figure is the NAV of the mutual fund.

So, the mathematical formula for NAV is:

Assets – Debits / Number of outstanding units = Net asset value (NAV)

The NAV of a mutual fund is always calculated at the end of the market day. This is because the market value of securities changes on a daily basis. Hence, the NAV of a mutual fund also changes daily.

Example 1

Suppose the market value of the securities of a mutual fund scheme is Rs 500 lakh. The mutual fund issues 10 lakh units of Rs 10 each to its investors. So, the NAV per unit of the fund is Rs 50.

Difference between NAV and stock price

Many investors confuse the NAV of a mutual fund with the market price of a stock. So, when investing in mutual funds, they think that a lower NAV means a cheaper price and thus a better investment. Let us see why this is a wrong assumption.

When a company gets listed on the stock exchange, its shares become available for investors to buy. The cost of the company’s shares is mentioned on the stock exchange. That is the stock market price of its shares. Factors such as the demand–supply scenario and the company’s potential affect the price of its shares. So, the stock market price is different from its book value.

For mutual funds, there is no such thing as the market price of a unit. We buy mutual fund units at their book value. The NAV of a mutual fund is thus the book value of the unit. Hence, the market price of a company’s stock is very different from the NAV of a mutual fund.


(Read more: How mutual funds work?)

How does a high or low NAV matter?

Some distributors promote new fund offers by highlighting their low NAV. They lead investors to believe that buying a mutual fund with a low NAV means getting a good deal. Again, this is because some investors mistakenly equate the NAV of a mutual fund with the price of a company’s stock. A low stock price means that the stock is available at a bargain price. As mentioned, the same does not apply to a mutual fund’s NAV. You cannot judge how expensive or cheap a fund is by its NAV. The NAV simply tells you the current value per unit of a mutual fund scheme. A high NAV may only reflect the positive performance of a mutual fund scheme. It also indicates that the scheme has been around for a long time.

NAV only affects the number of units you receive. A mutual fund scheme with a high NAV gives you fewer units, but the value of your investment remains the same. What matters is the performance of the mutual fund and the returns you get.

Example 2

Suppose you invest in two mutual fund schemes, X and Y. Scheme X has a NAV of Rs 10 and Scheme Y has a NAV of Rs 50. You make an investment of Rs 1 lakh in both schemes. It may seem that Scheme X is cheaper because you get 10,000 mutual fund units, while Scheme Y gets you only 2,000 units. Now suppose both schemes give a return of 10% after a month. This means that the NAV of Scheme X is Rs 11 and the NAV of Scheme Y is Rs 55. For both schemes, your investment value is Rs 1.1 lakh. The only difference here is that you get more units with Scheme X than with Scheme Y. So, the NAV of a mutual fund is irrelevant when it comes to the performance of the fund.

Bottom line:

The NAV of a mutual fund is its book value. When investing in mutual funds, you should check the performance of the fund, not its NAV. You can do this by looking at the returns the fund has generated over the years.

(Read more: How to choose a mutual fund scheme?)


We are almost at the end. Before you start investing in mutual funds, there are a few more important points to keep in mind like taxation. This can affect your total financial returns. To know about these factors, Click here

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