What is NAV?

NAV stands for Net Asset Value. It is the per-unit value of a mutual fund scheme on a given day.

How it is calculated

Take everything the scheme holds, subtract what it owes, and divide by the number of units outstanding:

NAV = (value of holdings − liabilities) ÷ number of units

It is published at the end of each business day, because the value of the underlying holdings is only known once markets close.

The mistake almost everyone makes

Here is the misunderstanding worth correcting early, because it costs people money:

A scheme with a NAV of ₹15 is not cheaper than one with a NAV of ₹450.

It is tempting to reason that ₹10,000 buys 666 units of the first and only 22 of the second, so the first is better value. It is not. In both cases you have invested ₹10,000, and in both cases your money grows at the same rate the underlying portfolio grows.

A low NAV usually just means the scheme is newer. It tells you nothing about quality, cost or prospects.

What matters is how the NAV changes over time, not the number itself.

What NAV determines

Two practical things:

• Units allotted. When you invest, your amount is divided by the applicable NAV to determine how many units you receive.
• Redemption value. When you sell, your units are multiplied by the applicable NAV.

Which day's NAV applies

Not necessarily the day you click submit. The applicable NAV depends on when the money is actually realised by the fund house, subject to the cut-off timings prescribed for that scheme type.

A transfer initiated late in the day, or on a non-business day, is generally processed at the next business day's NAV. This is worth knowing so a one-day difference does not come as a surprise.

NAV already includes costs

The expense ratio — the annual cost of running the scheme — is already reflected in the NAV you see. It is not billed to you separately.

This means any return figure shown for a scheme is after those costs have been taken out.