What is NAV in Mutual Funds & How to Calculate NAV

NAV, or Net Asset Value, is the per-unit price of a mutual fund and plays a key role in determining your investment’s value. When you buy at a lower NAV and sell at a higher NAV, you earn returns on the difference, just like stock trading. 

Even though NAV is not the sole indicator of the performance of a fund, investors often check NAV to determine performance. Understanding what is NAV and how it works can help you make smarter, more informed investment choices. 

Let us break it down before you invest.

Key Notes

• NAV is the per unit price of mutual funds. 
• A lower NAV purchase and a higher NAV sale results in profits.
• Open-ended funds calculate NAV daily

NAV Full Form in Mutual Fund

NAV stands for Net Asset Value in mutual funds. It is the value of each unit of mutual funds after deducting the fund’s liabilities from its total assets and then dividing it by the total outstanding units. NAV is used to assess the value of mutual funds. As a result, it is considered the price per unit of mutual funds.

NAV mirrors the closing price of a fund calculated daily. Thus, it reflects the market value of one unit of your mutual fund. Usually, the NAV of an NFO (New Fund Offer) is ₹10, and it increases as the asset value of a fund increases per unit. 

Types of NAV

Here are the different types of NAV in 2025 for mutual funds:

1. Daily NAV: Calculated at the end of each day for open-ended funds, showing the per-unit market value.
2. Periodic NAV: Calculated weekly or monthly for close-ended funds, based on their structure.

Formula to Calculate NAV

Here is the formula to calculate the NAV:

NAV = (Total Asset Value - Total Value of Liabilities) / Total Outstanding Units

Notably, assets include cash, market value of securities, dividends and other similar components. On the flip side, liabilities include expenses and fees incurred towards a fund. 

Importance of NAV for Mutual Fund Investors

Here is the significance of NAV for investors:

• NAV acts as a performance indicator of a mutual fund. For instance, an increasing NAV indicates a promising fund performance, while a decreasing NAV is an indicator of undesirable fund performance. 
• Investors often view a lower NAV as a sign that a mutual fund is cheaper, allowing them to buy more units for a similar investment amount.

How Does Time of Investment Affect NAV?

The timing of buying and selling a mutual fund affects the NAV in the following way:

• If the AMC (Asset Management Company) received your money before 3 PM on a specific day, the NAV of that day applies while buying a mutual fund.
• In the case of selling a mutual fund, if the AMC receives your redemption request before 3 PM, the NAV of that day applies. However, if the request is received after 3 PM, the NAV of the following day applies.
• For liquid and overnight funds, the purchase cut-off time is 1:30 PM, while the redemption cut-off time is 3:00 PM.

How Does NAV Affect Long-term Investments and SIPs?

When you invest in a mutual fund through a SIP (Systematic Investment Plan), the NAV per unit varies with each instalment. As a result, over time, cost averaging can reduce the average per-unit price. You benefit when the selling price is higher than your average buying price.

Role of NAV in Fund Performance

NAV is one of the key metrics investors monitor to assess a mutual fund's performance. An increasing NAV indicates capital appreciation for investors. On the flip side, a decreasing NAV may signal a drop in the fund's value or underperformance.

An increasing NAV thus helps investors earn a higher return on their investment. Even though NAV is not the only indicator of fund performance, as an investor, you can monitor the NAV of a fund to understand its per-unit asset value. 

From a buying perspective, a lower NAV allows you to purchase more units for the same investment amount, while a higher NAV means fewer units. Over time, if the NAV of your fund grows, so does the value of your holdings, resulting in potential capital gains.

Final Word

NAV helps investors determine whether to purchase or sell their investment in mutual funds. If you purchase at a lower NAV and sell at a higher NAV, you earn a profit. While it is not the only factor to consider, regularly checking the NAV can help you make more informed investment decisions and optimise your returns.

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