Last Updated: July 2026
If you have ever invested in a mutual fund or explored investment options, you have probably come across the term NAV (Net Asset Value). Many first-time investors believe that a mutual fund with a lower NAV is cheaper or offers better growth potential, while a higher NAV means the fund has become expensive.
This is one of the biggest misconceptions about mutual fund investing.
Unlike stock prices, a mutual fund’s NAV does not determine whether it is a good investment. A fund with an NAV of ₹20 is not necessarily better than a fund with an NAV of ₹200. What matters is the quality of the portfolio, investment strategy, fund management, and how well the scheme aligns with your financial goals.
Understanding NAV is essential because it determines the price at which investors buy and redeem mutual fund units. It also helps investors track the daily value of their investments and understand how mutual funds operate.
In this comprehensive guide, you’ll learn what NAV means, how it is calculated, why it changes every business day, common myths about NAV, and why investors should focus on long-term performance instead of comparing NAV values.
Author’s Note
I am Suresh Vankar, a finance professional with more than 15 years of experience in banking, lending, insurance, and personal finance.
During my interactions with investors, one question comes up repeatedly:
“Should I invest in a mutual fund with a lower NAV because it has more growth potential?”
The answer is almost always No.
This misunderstanding has caused many investors to ignore high-quality mutual funds simply because their NAV appeared higher.
Through SV Finance, my goal is to explain financial concepts in a practical and easy-to-understand manner so that investors can make informed decisions based on facts rather than myths. This article is written for educational purposes and is based on publicly available information and established investment principles. It should not be considered personalized investment advice.
Why Understanding NAV Is Important
Every mutual fund investor should understand what NAV represents.
Knowing how NAV works helps you:
- Understand the actual value of your mutual fund units.
- Avoid common investment myths.
- Make better investment decisions.
- Track your portfolio correctly.
- Focus on long-term wealth creation instead of short-term numbers.
Remember, NAV is simply the value of one mutual fund unit—it is not a measure of whether a fund is good or bad.
What You Will Learn
- What is NAV in Mutual Funds?
- Full form of NAV.
- How NAV is calculated.
- Why NAV changes every day.
- Does a lower NAV mean a better investment?
- Difference between NAV and share price.
- Common myths about NAV.
- Frequently Asked Questions.
- Expert insights from Suresh Vankar.
Table of Contents
Table of Contents
What Is NAV in Mutual Funds?
NAV (Net Asset Value) is the per-unit value of a mutual fund.
It represents the value of one unit of a mutual fund after deducting all liabilities and expenses from the total value of the fund’s assets.
In simple words, NAV tells you the price at which you buy or redeem mutual fund units on a particular business day.
Every business day after the stock market closes, the Asset Management Company (AMC) calculates the total market value of the securities held by the mutual fund. After adjusting liabilities and dividing the result by the total number of outstanding units, the NAV for that day is published.
This daily calculation ensures that all investors buy and redeem units at a fair and transparent price based on the current value of the fund’s portfolio.
What Is the Full Form of NAV?
NAV stands for Net Asset Value.
It represents the per-unit value of a mutual fund after deducting all liabilities from the total market value of the fund’s assets.
Think of NAV as the daily price of one mutual fund unit.
When you invest in a mutual fund, the number of units you receive depends on the NAV applicable on the day your investment is processed.
How Is NAV Calculated?
The Asset Management Company (AMC) calculates the NAV at the end of every business day after the stock market closes.
The simplified formula is:
NAV = (Total Value of Assets – Total Liabilities) ÷ Total Outstanding Units
Where:
- Assets include shares, bonds, government securities, cash, and other investments held by the fund.
- Liabilities include fund management expenses and other operational obligations.
- Outstanding Units represent the total number of units held by all investors.
Although investors do not need to calculate NAV manually, understanding this formula helps explain why NAV changes every trading day.
Why Does NAV Change Every Day?
Mutual fund NAV is updated on every business day because the market value of the securities held by the fund keeps changing.
Some common reasons include:
- Increase or decrease in stock prices.
- Changes in bond prices.
- Dividend received by the scheme.
- Interest income earned by debt securities.
- Fund expenses deducted from the portfolio.
- Purchase or sale of securities by the fund.
As market conditions change, the total value of the mutual fund portfolio also changes, resulting in a revised NAV.
Does a Higher NAV Mean the Fund Is Expensive?
No.
This is one of the biggest myths among new investors.
A higher NAV does not mean the mutual fund is expensive.
Similarly, a lower NAV does not mean it offers better future returns.
For example:
Fund A
NAV = ₹25
Fund B
NAV = ₹250
The higher NAV of Fund B does not indicate that it is overvalued.
Both funds may generate similar percentage returns if their underlying portfolios perform similarly.
Instead of comparing NAV values, investors should compare:
- Investment objective.
- Fund category.
- Long-term performance.
- Risk level.
- Expense ratio.
- Portfolio quality.
NAV vs Share Price
Many investors compare mutual fund NAV with a company’s share price.
However, they are completely different concepts.
| Feature | Mutual Fund NAV | Share Price |
|---|---|---|
| Represents | Value of one mutual fund unit | Market price of one company share |
| Determined By | Value of fund assets and liabilities | Market demand and supply |
| Updated | Once every business day | Continuously during market hours |
| Influenced By | Entire mutual fund portfolio | Performance of one company |
Understanding this difference helps investors avoid comparing mutual funds with individual stocks.
Why Investors Should Not Focus Only on NAV
Successful mutual fund investing is not about buying funds with the lowest NAV.
Professional investors usually evaluate:
- Fund manager’s experience.
- Portfolio quality.
- Investment strategy.
- Risk-adjusted performance.
- Expense ratio.
- Consistency over different market cycles.
A well-managed mutual fund with a higher NAV can still be an excellent long-term investment.
My Professional Analysis
During my 15+ years in banking and financial services, I have noticed that many investors incorrectly assume that a mutual fund with a lower NAV has more room to grow.
In reality, NAV simply reflects the value of one unit of the mutual fund at a particular point in time.
When choosing a mutual fund, investors should focus on long-term consistency, investment philosophy, risk management, and whether the scheme aligns with their financial goals—not on the NAV alone.
In the next section, we’ll discuss common myths about NAV, answer frequently asked questions, and summarize the key lessons every mutual fund investor should remember.
Common Myths About NAV
Many investors make investment decisions based on misconceptions about NAV. Understanding the facts can help you avoid costly mistakes.
Myth 1: Lower NAV Means Better Returns
This is the most common myth.
A mutual fund with an NAV of ₹20 is not automatically better than a fund with an NAV of ₹200.
Future returns depend on the performance of the underlying portfolio—not on the NAV itself.
Myth 2: Higher NAV Means the Fund Is Expensive
Unlike a company’s share price, a higher NAV does not mean a mutual fund is overvalued.
NAV simply represents the value of one unit of the mutual fund on a particular business day.
A fund with a higher NAV can still deliver excellent long-term returns.
Myth 3: New Fund Offers (NFOs) Are Better Because the NAV Starts at ₹10
Many investors believe buying an NFO at ₹10 is cheaper than buying an existing mutual fund with an NAV of ₹150.
This is incorrect.
A lower starting NAV does not make an NFO a better investment.
The future performance of any mutual fund depends on the quality of its investments, fund management, investment strategy, and market conditions.
Myth 4: Daily NAV Changes Mean I Should Buy and Sell Frequently
Some investors closely monitor daily NAV movements and frequently switch funds.
This approach rarely benefits long-term investors.
Mutual funds are generally designed for long-term investing, where consistency and patience are more important than short-term NAV fluctuations.
Myth 5: NAV Alone Determines Fund Performance
NAV is only one piece of information.
Before investing, always evaluate:
- Investment objective.
- Fund category.
- Long-term consistency.
- Expense ratio.
- Risk level.
- Fund manager’s experience.
- Portfolio quality.
Frequently Asked Questions
1. What is a good NAV for a mutual fund?
There is no ideal NAV.
A higher or lower NAV does not indicate whether a mutual fund is good or bad.
Always evaluate the fund based on its objectives, performance consistency, risk profile, and suitability for your financial goals.
2. Why does NAV change every day?
NAV changes because the market value of the securities held by the mutual fund changes every business day.
Changes in stock prices, bond prices, interest income, and fund expenses all influence NAV.
3. Is a lower NAV better for SIP investors?
No.
In SIP investing, the number of units purchased depends on the NAV applicable on the investment date.
Over time, disciplined investing and the performance of the underlying portfolio matter far more than the NAV itself.
4. Is NAV similar to a company’s share price?
No.
A company’s share price is determined by market demand and supply throughout the trading day.
A mutual fund’s NAV is calculated once every business day based on the total value of the fund’s assets minus liabilities.
5. Should I compare mutual funds based on NAV?
No.
Instead, compare:
- Investment objective.
- Risk level.
- Long-term performance.
- Expense ratio.
- Portfolio quality.
- Fund manager’s consistency.
Key Takeaways
- NAV stands for Net Asset Value.
- NAV represents the per-unit value of a mutual fund.
- NAV is calculated after deducting liabilities from the total value of fund assets.
- NAV is updated once every business day.
- A lower NAV does not mean a better investment.
- Focus on long-term performance, risk, and investment objectives instead of NAV alone.
My Final Thoughts
After more than 15 years in banking, lending, insurance, and personal finance, I have observed that many investors spend too much time comparing NAV values and too little time understanding the mutual fund itself.
A successful investment decision is based on choosing the right mutual fund for your financial goals—not on finding the fund with the lowest NAV.
Whether you invest through SIP or a lump sum, your long-term wealth will depend on disciplined investing, patience, and selecting quality mutual funds that align with your objectives.
Understanding NAV is important, but it should never be the only factor influencing your investment decisions.
Conclusion
NAV is one of the most fundamental concepts in mutual fund investing, but it is also one of the most misunderstood.
Rather than treating NAV as an indicator of whether a fund is cheap or expensive, investors should view it as the daily value of one mutual fund unit.
When selecting a mutual fund, focus on factors such as investment strategy, long-term performance, risk level, and consistency. Combined with regular SIP investing and a long-term perspective, these factors are far more important than the NAV itself.
Official Resources
Association of Mutual Funds in India (AMFI)
https://www.amfiindia.com
Securities and Exchange Board of India (SEBI)
https://www.sebi.gov.in
SEBI Investor Education
https://investor.sebi.gov.in
Also Read
- Best SIP Mutual Funds for Beginners 2026
- How to Choose a Mutual Fund
- Direct vs Regular Mutual Funds
- Index Fund vs Active Mutual Fund
- Mutual Fund Risk Levels Explained
About the Author
Suresh Vankar is a finance professional with more than 15 years of experience in banking, lending, insurance, and personal finance. Through SV Finance, he publishes practical, research-based articles that simplify mutual funds, banking, insurance, taxation, and financial planning to help Indian readers make informed financial decisions.
Disclaimer
Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. This article is for educational purposes only and should not be considered financial or investment advice. Investors should evaluate their financial goals, risk tolerance, and consult a SEBI-registered investment adviser before making investment decisions.