When you start investing in mutual funds, you’re introduced to a host of new terms—SIP, expense ratio, AUM, fund house—and one word you’ll encounter consistently is NAV, or Net Asset Value. It often shows up next to a number, updated daily, and yet most new investors are unsure what it truly represents or why it should matter to them.
But here’s the reality: whether you’re investing for long-term goals, your child’s future, or a first-time financial milestone, understanding NAV in a mutual fund is central to making smart, informed decisions.
It’s not just a number.
It’s a window into the actual value of your investment.
Why NAV in mutual funds matters in today’s investment landscape
With the rise in digital investment platforms and a growing appetite for mutual funds across urban and semi-urban India, more individuals are stepping into the world of wealth creation.
According to the Association of Mutual Funds in India (AMFI), total Assets Under Management (AUM) as of June 2025 reached ₹74.41 lakh crore, reflecting the growing popularity of mutual fund investing.
But greater access brings greater responsibility. As investors become more aware, they are asking better questions—not just “where should I invest?” but “how is my investment measured?” This is where the net asset value in a mutual fund plays a pivotal role. It offers you clarity, objectivity, and a transparent way to evaluate how your chosen scheme is performing.
What is NAV in mutual funds, and how does it work?
Let’s break this down without the jargon. Net Asset Value (NAV) is the per-unit price of a mutual fund. It reflects the current market value of all the assets the fund holds (stocks, bonds, cash), minus its liabilities (expenses, payables), divided by the number of units issued to investors.
Think of it this way: if a mutual fund is like a large investment basket shared by many people, the NAV tells you how much one share of that basket is worth right now.
It’s calculated at the end of every business day and updated across all fund platforms.
Here’s the net asset value formula:
NAV = (Total Assets – Total Liabilities) / Number of Outstanding Units
Suppose a mutual fund has ₹500 crore in total assets and ₹5 crore in liabilities. If the fund has issued 5 crore units:
NAV = (₹500 – ₹5) / 5 crore = ₹99 per unit
So, if you invest ₹10,000 today, you’ll get approximately 101 units. Tomorrow, if the NAV moves to ₹103, your investment is now worth ₹10,403. This movement is what reflects gains (or losses) over time.
What happens after NAV is declared daily? What should investors look for?
NAVs are published every evening after markets close—typically by 9 PM.
But seeing a number like ₹47.23 or ₹112.80 on your app doesn’t tell the full story unless you know how to interpret it.
You might wonder:
- “Is a ₹15 NAV better than a ₹150 NAV?”
- “Will I get more returns by buying lower NAV funds?”
- “Do daily NAV changes affect my SIP?”
Here’s the truth:
NAV alone doesn’t determine whether a fund is ‘cheap’ or ‘expensive’. It just tells you the current price per unit. A lower NAV doesn’t mean a better fund, and a higher NAV doesn’t mean it’s overpriced.
What you should care about is how the NAV has grown over time.
For instance, a fund with a NAV of ₹10 that consistently grows to ₹25 in five years has performed better than a fund that stays flat at ₹60. Historical NAV growth, consistency, and alignment with your financial goals are what matter—not the absolute number today.
Why does NAV change every day? What drives it?
The reason NAV in mutual funds fluctuates daily is that it reflects the real-time market value of the fund’s holdings. Every day, the prices of stocks and bonds change—so the overall value of the fund changes too.
Here’s what causes that:
1. Market performance of underlying securities
If a mutual fund has invested in equity shares of top Indian companies, and their stock prices go up, the NAV rises. Similarly, if markets correct or dip, the NAV can decline. It’s a direct mirror of what’s happening in the financial markets.
2. Dividend and interest income
Funds earn money through dividends (from stocks) and interest (from debt instruments). These inflows increase the fund’s assets, which in turn boost the NAV. This is particularly important for debt or hybrid funds that aim to offer steady returns.
3. Fund expenses and management fees
Operating a mutual fund isn’t free. There are fund manager salaries, administrative charges, distribution costs, etc., all of which are deducted from the fund’s total value. These show up as liabilities and impact the NAV marginally daily.
4. Cash inflows and outflows
Large-scale redemptions or inflows can influence a fund’s asset allocation. If many investors pull out at once, the fund may need to liquidate some holdings, impacting NAV. Conversely, new investments bring in capital, helping the fund maintain balance.
Understanding these drivers is essential—especially if you’re investing with a long-term goal in mind, like building an education corpus for your child. Even short-term NAV dips should be seen in context, not as reasons to panic.
How is NAV calculated and applied in real-life investing?
While the net asset value formula is fairly straightforward, it plays a vital role in your day-to-day investing activity.
Let’s say you initiate an SIP of ₹5,000 every month into a mutual fund with an average NAV of ₹25. Each month, depending on the NAV, the number of units you get will change. In a falling market, lower NAV means you get more units—and when the market recovers, those units gain value.
This mechanism is called rupee cost averaging, and it smoothens out the cost of investing over time—especially helpful for long-term goals like building a fund for your child’s secondary schooling or early-career startup.
Also, remember the cut-off time rule: if you invest before 3 PM, you get that day’s NAV. After 3 PM, it gets processed on the next business day’s NAV.
Let’s explore NAV’s components — what’s inside that number?
NAV isn’t pulled out of thin air—it’s made of two core ingredients: assets and liabilities.
Assets: The fund’s value generators
These include:
- Equity shares
- Corporate or government bonds
- Cash or cash equivalents
- Accrued interest and dividends
A high-quality fund invests in strong, well-managed companies or reliable bonds. For instance, an equity fund focused on Nifty 50 companies is likely to have stable underlying assets. Over time, as these assets grow in value, they push the NAV upward.
Liabilities: The costs of managing your money
Liabilities are:
- Fund management fees
- Auditor, custodian, and legal expenses
- Other payables or obligations
These are necessary costs for running the fund professionally and compliantly.
However, funds with lower expense ratios (costs as a % of total assets) tend to offer better long-term NAV growth.
Understanding this balance is crucial for any investor. A well-constructed mutual fund is one where the assets outweigh liabilities consistently—helping you track not just returns, but the efficiency of your investment vehicle.
NAV vs Fund Performance — are they the same thing?
Here’s where many investors go wrong. They see a mutual fund with a NAV of ₹12 and another with ₹120, and they assume the ₹12 fund will grow faster or is a better deal.
This is a myth.
The net asset value in a mutual fund reflects only the current unit price, not the percentage growth of your investment. A fund that launched 10 years ago might have grown from ₹10 to ₹120 due to solid performance. A new fund, starting at ₹10, still has to prove itself.
What you should look at is:
- Annualised returns over 1, 3, and 5 years
- NAV trend (is it stable, volatile, consistently rising?)
- Fund manager’s strategy and past performance
If you’re investing for your child’s higher education 12 years from now, the starting NAV doesn’t matter.
What matters is whether that fund can steadily grow your money, manage volatility, and protect capital in downturns.
Why NAV exists — and how it serves investors like you
The core purpose of NAV in mutual funds is to standardize pricing and provide transparent performance tracking.
But it does more than just offer daily numbers.
1. Enables fair pricing: Everyone buying or selling units on the same day gets the same NAV. This eliminates manipulation and ensures equity among all investors, large or small.
2. Reflects true fund value: NAV aggregates everything—assets, liabilities, and expenses—to show the net worth per unit. It’s like checking the real-time value of your share in the fund.
3. Helps in performance tracking: Comparing NAVs over time gives you a reliable indicator of how well your fund is doing. This matters a lot when planning milestones—like building a ₹10 lakh fund by the time your child turns 18.
4. Supports better planning and timing: Knowing NAV cut-off times, transaction cycles, and how NAV fluctuates helps you plan redemptions or large investments more efficiently.
In short, NAV gives you peace of mind—it helps you monitor, compare, and commit with confidence.
Conclusion
Whether you’re a seasoned investor or just starting, understanding net asset value in a mutual fund gives you a clear, trusted metric to guide your journey. It’s not the only thing that matters—but it’s a strong foundation.
NAV helps you make informed choices, stay informed, and invest consistently.
At Toddl, we make investing for your child simple, guided, and rewarding. From curated mutual fund baskets to transparent NAV tracking, we help you save and invest on behalf of your child (under 18).
Whether you’re starting a SIP for school expenses, building a college fund, or simply teaching your child how money works, Toddl gives you the tools to make every rupee count.
FAQs
1. Does a lower NAV mean the fund is cheaper or a better buy?
No, a lower NAV doesn’t mean a better deal. NAV is simply the price per unit, not a measure of performance. Two funds with vastly different NAVs can deliver the same returns. What matters more is how the NAV has grown over time and whether the fund fits your goals. Think of it like buying shares—just because a stock is ₹100 doesn’t mean it’s better than one priced at ₹1,000. Look beyond the number.
2. How is NAV calculated, and why does it change daily?
NAV is calculated using the formula:
(Assets – Liabilities) ÷ Outstanding Units.
It changes daily based on market performance, dividends, interest earned, fund expenses, and investor inflows/outflows. Since mutual funds hold market-linked instruments, any change in their prices directly impacts NAV. It’s a real-time reflection of the fund’s health.
3. If I invest today, will I get today’s NAV?
Only if your order and payment are processed before 3 PM on a business day, that’s the SEBI-mandated cut-off time. If it’s after, your units will be allocated based on the next business day’s NAV. This helps maintain transparency and avoid backdated pricing.
4. Can NAV go down? Should I panic?
Yes, NAV can go down—especially in volatile markets. But short-term NAV drops are common and not necessarily a sign of poor performance. Instead of reacting to every dip, focus on long-term trends and whether your goals remain on track. A falling NAV also lets your SIP buy more units—helpful when markets recover.
5. Is NAV enough to choose a mutual fund?
Not at all. NAV is just one part of the picture. You should also consider fund performance, manager experience, expense ratio, risk level, and how well it suits your investment time frame. NAV is useful—but it’s not the only factor that matters.
Disclaimer:
Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.
The examples and scenarios shared in this article are for educational purposes only and are intended to help parents and individuals make informed decisions. They do not constitute financial advice or a recommendation. For personalised investment planning — especially when investing for your child’s future — please consult a certified financial advisor or distributor.
