When comparing mutual funds, investors often look at NAV first. A fund with an NAV of ₹20 may appear cheaper than another with an NAV of ₹200. But does a lower NAV actually make a mutual fund a better investment?

No. NAV is not a measure of whether a mutual fund is cheap or expensive. It represents the value of one unit of the fund on a particular day.

Understanding this distinction is important because NAV is often compared with a stock price, even though the two work differently.

What is NAV in mutual funds?

NAV stands for Net Asset Value. It represents the per-unit value of a mutual fund after accounting for its assets and liabilities.

A mutual fund’s assets can include the market value of its investments, cash, cash equivalents, receivables and accrued income. Liabilities can include expenses, fees and other amounts payable by the fund.

The basic NAV formula is:

NAV = (Total Assets − Total Liabilities) / Number of Outstanding Units

The Investor.gov explanation of Net Asset Value also describes NAV as total assets minus total liabilities and explains how per-unit NAV is calculated.

NAV formula and calculation example

Suppose a mutual fund has:

First: Net Assets = ₹120 crore − ₹20 crore = ₹100 crore

Then: NAV = ₹100 crore ÷ 10 crore = ₹10 per unit

So, the fund’s NAV is ₹10

The same principle applies regardless of whether the NAV is ₹10, ₹100 or ₹500. The number represents the value of each unit, not the attractiveness of the investment. CFI similarly notes that comparing the absolute NAVs of different funds does not indicate which fund performed better.

Does a low NAV mean a mutual fund is cheap?

No. A low NAV does not mean a mutual fund is cheaper or better.

Consider two funds:

Fund A gives you more units, but that does not create an investment advantage.

If both funds’ underlying portfolios grow by the same percentage, the investment value can grow by the same percentage as well. The number of units is simply different because the NAV per unit is different.

This is why an NFO priced at ₹10 should not automatically be viewed as a bargain. More units for the same amount does not mean more wealth.

Why does NAV change?

NAV changes as the value of the securities and other assets held by the mutual fund changes.

When the underlying portfolio increases in value, NAV can rise. When the portfolio declines, NAV can fall. Because fund assets and liabilities change, NAV is generally calculated at least once every business day.

This is different from a stock price, which can change continuously during market trading.

NAV vs share price

The SEC’s NAV guidance explains the same basic relationship between a fund’s net assets and its per-share NAV.

What does NAV tell investors?

NAV tells you what one unit of a mutual fund is worth. It does not tell you whether the fund is a good investment.

For fund selection, investors should look beyond the NAV and consider the underlying portfolio, historical performance and how the fund fits into their investment strategy.

For example, investors comparing passive and active strategies can explore our guide on index funds vs active mutual funds.

Similarly, NAV should not be confused with the method through which you invest or withdraw money. Our guide on SIP, STP and SWP explains how these approaches differ.

The same principle applies when choosing between equity, debt and hybrid mutual funds. Their NAVs cannot be compared meaningfully without considering what each fund actually invests in.

What should investors focus on?

NAV is useful as a valuation reference, but it should not become the basis for choosing a mutual fund.

The key question is not “Which fund has the lowest NAV?” It is “What does the fund own, how has it performed, and does it fit my investment objective?”

For additional background, investors can refer to the Corporate Finance Institute’s guide to Net Asset Value and TradingView’s explanation of NAV.

Key takeaways

• NAV means Net Asset Value.
• It represents the value of one mutual fund unit.
• The NAV formula is (Total Assets − Total Liabilities) / Outstanding Units.
• NAV is generally calculated and declared at the end of each business day.
• A low NAV does not mean a fund is cheap or better.
• An NFO priced at ₹10 is not automatically a discount.
• The number of units you receive does not determine your returns.
• Fund performance and the underlying portfolio matter more than the absolute NAV.

Conclusion

NAV is an important number for understanding the value of a mutual fund unit, but it is not a shortcut for identifying the best investment. A ₹10 NAV is not automatically more attractive than a ₹100 NAV.

Investors should look beyond the headline number and evaluate the fund’s portfolio, performance and role within their broader financial plan.