Why can funds tracking the same index have different NAVs?

Imagine you're looking to invest in a Nifty 50 index fund. You come across two options — both track the same index and invest in the same 50 stocks. But one fund has a NAV of Rs 167.10, while the other is priced at just Rs 10.01.

You pause and wonder: if both are investing in the exact same index, why is one so much "costlier" than the other? Let's clear this up.

First, what is NAV?

NAV, or net asset value, is the price of a single unit of a mutual fund. It reflects how much each unit is worth at the end of a trading day. NAV is calculated by taking the total value of all the stocks and other assets the fund holds, subtracting any expenses or liabilities, and then dividing that by the number of units in the fund.

So, if the total investment value is Rs 100 crore and there are one crore units, the NAV would be Rs 100 per unit. This value changes daily depending on how the fund's investments perform.

Why the big difference in NAVs? It's mostly about time

Let's go back to the two Nifty 50 index funds. One has a NAV of around Rs 167.10, while the other is just Rs 10.01. That might seem like a huge difference — but the reason is actually very straightforward: they didn't start at the same time.

The fund with the higher NAV — the oldest Nifty 50 index fund in India — started way back in March 2000. Since then, it has been investing in the market for more than 25 years. Over all these years, the money it invested has grown, reinvested and compounded. And as that pool of investments kept growing in value, so did its NAV. Today, it stands at Rs 167.10 (as of May 5, 2025).

On the other hand, the fund with the lower NAV is the newest Nifty 50 index fund, launched in October 2024. It's been in the market for just a few months. Naturally, it hasn't had much time to grow. That's why its NAV is still close to where it started — currently at Rs 10.01.

Think of it like two people starting a savings plan. One started 25 years ago and kept investing. The other just started last year. Even if they both save the same way, the person who started earlier will have a much bigger corpus — not because they saved more aggressively, but simply because they've been at it longer.

It's exactly the same with mutual fund NAVs. The older a fund, the more time it has had to grow — and that's what leads to a higher NAV. Nothing more, nothing less.

Does a lower NAV mean it's cheaper or better?

Not at all. A lower NAV doesn't mean the fund is cheaper or a better deal. It only means the fund was launched more recently.

Let's say you invest Rs 10,000 in both funds.

In the older fund (with a NAV of Rs 167.10), you'll get fewer units — around 59.8 units.

In the newer fund (with a NAV of Rs 10.01), you'll get more units — nearly 999.0 units.

But that doesn't affect how your money grows. What matters is how well the fund tracks the index. For example, the Nifty 50 index has gained around 6.3 per cent in March 2025 and around 3.7 per cent so far in 2025 (YTD). If both funds have mirrored the index accurately, your investment in either fund would have grown by the same percentage, regardless of the NAV or the number of units you own.

The gain is calculated on your investment amount, not the number of units. So, whether you got 59 or 999 units doesn't matter — your Rs 10,000 would have become Rs 10,630 if the index gained 6.3 per cent. Simple as that.

The bottom line

When choosing an index fund, don't be swayed by how high or low the NAV is. Neither is better nor worse because of that alone.

What really matters is how closely the fund tracks the index and whether it does so efficiently. But that's a topic for another day. For now, just remember: NAV is a number — not a verdict.

An investor education and awareness initiative of Nippon India Mutual Fund

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Also read: Understanding NAV and its role in index funds and ETFs

This article was originally published on May 12, 2025.