What is NAV in Mutual Funds?

What is NAV in Mutual Funds

If you regurarly invest in mutual funds, you should come across NAV. Same as share price for stocks, NAV in mutual funds helps to validate the fund performance.

As an investor, if yourn’t sure about the concept of NAV, how it works, and how it’s calculated. Then, this article will be an eye-opener.

What is NAV?

NAV or Net Asset Value denotes the value for units of mutual funds. It is usually updated for all mutual fund schemes post the trading day. Unlike share price that fluctuates up and down during the trading hours, NAV are unit are updated only once in a day.

Mutual funds hold various securities, and each security has its own stock price. In Net asset value (NAV), mutual funds calculate the average performance of total assets held in the portfolio per day.

Transactions like buying and selling of fund units happen on the basis of NAV. Total expense ratio (TER) is deducted from NAV.

Calculation of NAV in Mutual Funds

Various Asset Management Companies offer mutual funds through NFO (New Fund Offer). During the NFO (closed period), each fund unit will be at Rs. 10, i.e., NAV = 10 Rs.

Until the mutual fund hits the ground, its NAV is Rs. 10 per unit. For example, if you have invested Rs. 1,00,000 in the new scheme under NFO, you will be allotted 10000 units.

Mutual fund NAVs are calculated this way.

After the scheme is launched, NAV is calculated by using the following formula:

NAV (Net Asset Value) = ((Fund Total Asset – Fund Total Liabilities)/Number of outstanding shares))

Total fund Asset – Cumulative Value of all shares in the mutual fund.

Total Liabilities – Expenses or TER of the scheme.

Note: The assets are calculated based on the share price at the closing bell.

So, post the trading hour, the assets will be calculated and subtracted by the expense per day (Percentage from TER).

For example, If the asset value has grown from 1000 (NAV – 100 Rs) crores to 1100 crores. So, the growth for the day is 10%. In this, the fund house deducts TER (let us assume 2% TER).

Daily profit is subtracted from the expense ratio. In the above scenario, the growth is 100 crores. So, 2% of growth is 2 crores.

The amount post TER deduction is 98 crore. So, the current value of an investment will be 1098 crores. Hence, NAV will be 109.8 per mutual fund unit.

Cut Off Time for NAV in Mutual Funds by SEBI:

There are two major classifications of mutual funds. Open-ended and Closed-ended.

In a closed-ended mutual fund, investors can only buy the units of schemes when the fund house opens to invest and is open to selling—generally, the maturity period.

But, in the case of open-ended mutual funds, investors can park funds to buy units whenever necessary.

Here it would help if you understood on NAV, which date will be updated in your portfolio.

As per SEBI, there is a cut-off time for investment and redemption. This is applicable from 1st February 2021, as per the Sebi circular no. SEBI/HO/IMD/DF2/CIR/P/2020/253.

Mutual Fund Scheme Transactions Type Cut Off Timing
Liquid Funds & Overnight Funds
1.30 pm
3.00 pm
All other Schemes
3.00 pm
3.00 pm

As per SEBI’s above cut-off timing guideline, if an investor makes a transaction in a large cap mutual fund at 2.49 pm, then the fund house will use the NAV of the same day to calculate the number of units.

If another investor redeems a large cap mutual fund at 3.01 pm, the fund house will use the NAV of the next trading day to calculate the number of units to be redeemed.

What are the difference between NAV and Share Price?

Both NAV and share price estimate the price of a unit in any investment (mutual funds or stocks). Yet, there is a considerable difference between these two denominations.

  • Shares prices change every second in stock exchange portals. In contrast, NAV in mutual funds changes once a day, after the trading hours.
  • Share price moves up and down in regards to the demand and supply of the market. NAV completely depends on the cumulative stock performance in the portfolio.
  • NAV is not the perfect indicator of a mutual fund’s performance. But, share prices are the indicator of a stock’s performance.

Role of NAV in Mutual Fund Performance:

Many investors think NAV relates to the performance of a fund. Unlike stocks, NAV can’t be the direct source to estimate the performance of any scheme.

We can calculate the CAGR or XIRR of the fund using NAV of two different intervals.

The conspiracy is that a lower NAV is like a low share price. Many investors compare the NAV of two irrelevant schemes to choose the better one. There are many proven ways to select a mutual fund, and NAV is not among them.

When calculating the fund’s performance, you should use CAGR (Compound Annual Growth Rate) and XIRR (for SIP investments). To calculate the performance, you should consider the NAV of two intervals.


  • Net asset value (NAV) denotes the price per unit of the fund.
  • NAV is calculated by dividing the total value of assets minus expense ratio by the total number of outstanding fund units.
  • The NAV helps an investor calculate any fund’s growth or performance between two intervals.


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