What Is Net Asset Value (NAV)?

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  • 02 Feb 2023

As a mutual fund investor, you must be familiar with the term ‘net asset value’ (NAV). It can help you assess the performance of a particular mutual fund scheme.

Simply put, NAV is the market value per unit of all the securities held by a mutual fund scheme.

(Read more: What is a mutual fund)

When you invest money in a mutual fund, you get units in exchange for your investment. This makes you a unit-holder in the mutual fund scheme. It is somewhat like becoming a shareholder after buying stocks.

Mutual funds invest the money collected from investors in the securities markets. So, mutual funds hold a certain amount of assets at any given time, and mutual fund investors hold a certain number of units within those mutual funds.

To arrive at the NAV of a mutual fund scheme, you have to first calculate the total net assets of the mutual fund. This is the market value of all the assets of the mutual fund, minus any liabilities, as of a certain date. The NAV is then calculated by dividing the total net assets by the total number of units issued. Thus, NAV is measured on a per-unit basis.

Since the market value of securities changes every day, the NAV of a scheme also varies daily. It is mandatory for mutual funds to disclose the NAV on a regular basis. This may be daily or weekly, depending on the type of scheme. Open-ended funds publish their NAV on all working days; close-ended funds do so once a week.


The market value of the securities of a mutual fund scheme is Rs 200 crore and it has issued 10 crore units to investors. Therefore, the fund’s NAV per unit will be Rs 20.

(Read more: How to calculate the NAV of a mutual fund)

1. When you redeem your units:

There are two ways to exit a mutual fund: You can either sell it to another investor or sell it back to the fund. The latter is called ‘redeeming’. Once you redeem your lot of mutual fund units, the NAV of the fund changes due to the difference in the total number of units issued to investors.

Many mutual funds charge investors a fee for exiting within a certain period of time. This amount is deducted from the NAV and what remains is paid to the investor. This price is called redemption price or exit load.

2. On the ex-dividend date:

Just like companies, mutual fund houses announce the amount of dividend to be distributed a few days before the actual distribution. The date of the distribution is called the dividend date.

Once this happens, the fund’s NAV falls as the dividends are deducted from the fund’s assets. The day of this deduction is called the ex-dividend date.

Knowing the NAV of a mutual fund scheme can help you make better investment decisions. But it all depends on the type of scheme you are looking at.

  • Close-ended schemes:

These schemes have fixed maturity periods. Investors can buy into these funds during the initial period when these funds are open for subscription. Once that window closes, such schemes cannot issue new units except in case of bonus or rights issues.

After that period, you can only buy or sell already-issued units of the scheme on the stock exchanges where they are listed. The market price of the units could vary from the NAV of the scheme due to demand and supply factors, investors' expectations, and other market factors.

  • Open-ended schemes:

These funds, unlike close-ended schemes, do not have a fixed maturity period. You are free to buy or sell units at NAV-related prices from and to the mutual fund, on any business day. This means that the fund can issue units whenever it wants.

Investors prefer open-ended schemes due to their liquidity. In an open-ended scheme, you can get your money back any time at the prevailing NAV from the mutual fund itself.

  • Interval schemes

These schemes combine the features of open-ended and closed-ended schemes. They may be traded on stock exchanges or be open for sale/redemption during pre-determined intervals at NAV-based prices.

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

Bottom line:

You must not enter and exit a mutual fund scheme as and when the market turns. Like stocks, investments in mutual funds pay off only if you have the patience to wait. This applies to both buying and selling. It is not advisable that you pick a fund simply because it has shown a spurt in value in the current market rally.

The NAV of a mutual fund scheme can be a useful tool in this regard. By tracking the recent NAVs of your shortlisted funds, you may be able to have an estimate of their future performance.

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