Understanding NAV (Net Asset Value)
Net Asset Value (NAV) is the market value per unit of a mutual fund scheme. It is calculated by dividing the total net assets of the scheme by the total number of outstanding units.
How NAV is Calculated
NAV = (Total Assets - Total Liabilities) / Total Number of Units
NAV is recalculated at the close of every business day based on the closing prices of the underlying securities in the fund's portfolio.
The Common NAV Myth
Many investors believe that a fund with a NAV of ₹10 is "cheaper" or better value than a fund with a NAV of ₹100. This is a misconception.
Example:
- Fund A (NAV ₹10): An investment of ₹10,000 buys 1,000 units.
- Fund B (NAV ₹100): An investment of ₹10,000 buys 100 units.
If both funds invest in the exact same stocks and those stocks gain 10%, your ₹10,000 investment grows to ₹11,000 in both funds. The starting NAV has no bearing on future returns.
Key Takeaways
- Focus on portfolio quality and fund manager track record—not the NAV value.
- New Fund Offers (NFOs) at ₹10 NAV are not discounts.