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Summary: NAV, or net asset value, is a fundamental concept in mutual fund investing that is widely misunderstood. Many investors mistakenly treat a low NAV as a bargain when in reality, it says nothing about a fund's value or potential returns.
If you've ever bought or sold mutual fund units, you've encountered the term 'NAV'. Understanding what it means can help you make smarter investment decisions.
How is the NAV of a mutual fund calculated?
NAV, or net asset value, is the market value of all shares held in a portfolio, including cash, minus any liabilities, divided by the total number of units outstanding. In other words, it is simply the book value of one unit of the fund.
Is a low NAV good?
Many investors believe a fund with a low NAV is 'cheaper' than one with a higher NAV. During new fund offers, distributors often reinforce this by pitching a low NAV as a bargain. It isn't. A fund's NAV, by itself, is irrelevant.
This misconception stems from comparing NAV to stock prices, where a low price can signal undervaluation. A fund's NAV works differently; it doesn't tell you whether a fund is cheap or expensive. It simply reflects the current value of one unit of the portfolio.
Suggested read: Low NAV doesn't mean cheaper fund
Let’s say you have Rs 10,000 to invest across two options: Fund X (NAV of Rs 10) and Fund Y (NAV of Rs 50), both holding identical portfolios.
Your money buys you either 1,000 units of Fund X or 200 units of Fund Y. After one year, assuming both funds grow by 25 per cent, the NAVs become Rs 12.50 and Rs 62.50 respectively. Your investment in either case is worth the same:
- Fund X: 1,000 × 12.50 = Rs 12,500
- Fund Y: 200 × 62.50 = Rs 12,500
The returns are identical, regardless of NAV.
When you buy a mutual fund at its NAV, you are buying at book value, which means you are paying the right price for its assets, whether that NAV is Rs 10 or Rs 100. What matters is the fund's performance, not its NAV. The simplest way to assess that is to compare returns across similar time periods.
Also read: The ultimate guide to mutual fund investing
This article was originally published on September 07, 2020, and last updated on June 03, 2026.
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