How To Calculate NAV Of Mutual Fund

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  • 10 Nov 2023
How to Calculate NAV of Mutual Fund

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?)

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?)

Many investors misunderstand how NAV works. As a result, they could make poor investment choices. If you are a mutual fund investor, get a clear picture of how NAV is linked to fund performance. Steer clear of the common misconceptions that are listed below:

Misconception #1: Schemes with low NAVs fall cheaper.

Suppose you invest the same amount in two mutual fund schemes which have identical portfolios. The scheme with the lower NAV will fetch you more mutual fund units. But this does not mean that it is cheaper.

Let’s consider a very simple example. Say, you invest Rs 1,000 each in two schemes. Scheme 1 has a NAV of Rs 10, getting you 100 units. Scheme 2 has a NAV of Rs 100, which fetches you 10 units. Both schemes have the same underlying asset portfolio, which gains by 20%. Let’s look at what this means for your investments:

  1. The NAV of Scheme 1 increases by 20% to Rs 12. That means the value of your investment grows to Rs 1,200 (i.e. Rs 12 x 100 units).

  2. Following the 20% appreciation, Scheme 2 now has a NAV of Rs 120. As a result, your investment value increases to Rs 1,200 (i.e. Rs 120 x 10 units).

As you can see, getting more units may not always result in higher returns. So, the NAV is not an effective measure of whether a fund is cheap or expensive.

Misconception #2: Funds with higher NAVs are better investments.

The example above shows that whether the NAV is high or low is irrelevant. If two mutual funds have the same portfolio, they will generate the same returns.

The NAV on any given day will not offer any hints about the growth prospects of a mutual fund. Instead, you must study the fund’s NAV in the recent past. Comparing these historical figures may help you to assess how a fund might perform going forward.

Misconception #3: Book profits when the NAV rises.

Do not confuse the NAV of a mutual fund with the price of a share. A share trader collects profits by selling shares when their price rises. But that is not how mutual funds work.

By redeeming fund units when the NAV increases, you might exit an investment with good longer-term prospects. And you might continue holding on to fund units whose NAVs are declining or stagnant. Rather than focus on the NAV, study the fund’s performance before redeeming any units. If a fund is performing well, it may be a good idea to stay invested.

Commonly, NAV is used to compute the price per share of a mutual fund or ETF. On the basis of the closing market values of the securities in the portfolio, NAV is determined at the conclusion of each trading day.The process for determining the net value is quite straightforward. Using the formula below, one may achieve it with ease:

Total outstanding shares / (Total Asset - Total Liabilities) = An Asset's Net Value.

Type of Transaction Transaction received ahead of the deadline Money received by the MF prior to the deadline NAV applicable
Purchase or SIP Installment
NAV on the same day
NAV of the following business day on which Stamping was completed before the deadline.
NAV of the business day after the receipt of the money by the mutual fund before the deadline

To Perform Inter-Scheme Switching

Type of Transaction Transaction received ahead of the deadline Money received by the MF prior to the deadline NAV applicable
Switch out
NAV Same Day
Switch in
This must be in accordance with the redemption pay out of the Switch-out plan, and in the case of the Switch-in scheme, it must be done before the cut-off time. NAV of the business day on which the funds are received.

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.

The majority of investors think that an asset's stock price and net worth are the same. As a result, people frequently believe that funds with smaller net asset values are more affordable and, thus, better investments. The determination of net asset value, however, is unrelated to the performance of the fund. The mere fact that a fund has a smaller net value does not imply that it is a thorough investment.

An asset's net worth only serves as an indicator of how the underlying assets have fared in prior years. As a result, investors shouldn't use it as a criterion when selecting funds to invest in. To make an informed choice, they should look at the returns on their assets.

So when trying to understand how a fund operates on a daily basis, the net worth of an asset is helpful. It makes no mention of how profitable a fund is. Investors should thus research the past success of the investment as well as the current cost of funds before making a decision to invest.

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?)

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?)

What Next?

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.


Visit the mutual fund's official website or utilize a financial news service that offers up-to-date NAV data to find out the Net Asset Value (NAV) of a certain mutual fund.

The market value of a mutual fund's underlying assets, such as stocks and bonds, has a major impact on the NAV. The NAV directly responds to changes in these asset prices, rising or falling in accordance.

The NAVs of mutual funds are normally updated once per day, usually in the evening, following the end of the trading day. Regulations for funds and markets may affect the precise updating time.

NAV, or "Net Asset Value," is the term used for stocks. The value of a company's net assets is calculated as the sum of its total assets minus its total liabilities, divided by the number of outstanding shares.

Divide the sum of the assets less the liabilities of a corporation by the total number of outstanding shares to obtain the Net Asset Value (NAV) per share. NAV per share is calculated as follows:

NAV per share = (Total Assets - Total Liabilities) / Outstanding Shares.

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