What is a mutual fund NAV?

The Net Asset Value (NAV) represents the price of each mutual fund unit, calculated by dividing the total market value of a fund's assets (after subtracting liabilities) by the number of outstanding units. It serves as a key metric to track the performance of an investment over time. However, many investors misinterpret NAV, using it as a measure of whether a fund is cheap or expensive. A common misconception, especially among new investors, is that a fund with a lower NAV is more affordable and offers higher growth potential compared to one with a higher NAV. This belief is entirely misleading. The truth is that NAV, by itself, does not determine a fund's future returns or performance. In this article, we'll explore the concept of NAV in detail, address the misconceptions surrounding it, and explain how investors should actually use this metric. By the end, you'll have a clearer understanding of NAV and be better equipped to make informed investment decisions. What is NAV (net asset value)? NAV represents the per-unit price of a mutual fund. It is calculated using the following formula: NAV = (Total Assets - Total Liabilities) / Total Number of Units Unlike stock prices, which are determined by market demand and supply, NAV reflects the intrinsic value of the fund's assets and liabilities. Therefore, NAV is not an indicator of a fund's future growth potential but rather a measure of its current valuation. Suggested read: How mutual fund NAVs grow from Rs 10 to Rs 4,000 How is NAV calculated? To understand how NAV is derived, let's look at the calculation process: Total assets: Add up the value of all securities (stocks, bonds, cash, etc.) in the fund. Subtract liabilities: Deduct expenses such as management

This article was originally published on May 06, 2025.