How Mutual Fund NAV Works: Calculation, Myths & What Actually Matters

What is NAV?

NAV (Net Asset Value) = (Total assets of the fund – Liabilities) ÷ Number of outstanding units

It's simply the per-unit value of the fund's portfolio at market close. If a fund has ₹100 crore in assets, ₹1 crore in liabilities, and 1 crore outstanding units, the NAV is ₹99.

SEBI mandates that all mutual funds declare their NAV at the end of every business day by 11 PM. This is published on the AMC website and the AMFI website (amfiindia.com).

How NAV is Calculated Daily

1. At 3:30 PM, the stock market closes. The fund's equity holdings are valued at closing prices.
2. Debt instruments are valued using a mix of market prices and amortisation methods (as per SEBI valuation guidelines).
3. Cash and equivalents are added; liabilities (fund management expenses, custodian fees, etc.) are deducted.
4. The resulting Net Assets value is divided by the total outstanding units to get NAV.
5. For IDCW (dividend) transactions, distributions reduce the NAV by the distribution amount.

The Biggest NAV Myth: Low NAV = Cheap Fund

Consider two identical funds investing in identical portfolios:

Both deliver identical returns. The starting NAV doesn't matter — what matters is the percentage return, which depends entirely on the underlying portfolio performance. A high NAV simply means the fund has been around longer or has performed well historically.

The NFO at ₹10 NAV Myth

New Fund Offers (NFOs) launch at ₹10 NAV. Many investors flock to NFOs thinking ₹10 is cheap. This is similarly misguided:

• An NFO at ₹10 has no track record — you don't know how the fund manager will perform
• An existing fund at ₹200 NAV with a 5-year track record of consistent outperformance is a much better risk-adjusted choice
• The ₹10 NAV does not mean you'll get more units worth more money — you get exactly the proportionate ownership of the portfolio

The only valid reason to choose an NFO over an existing fund is if the NFO offers a genuinely unique investment strategy not available in any existing fund. Simply being at ₹10 is not a reason.

NAV and Transaction Cut-off Times

The NAV you get depends on when your transaction (purchase/redemption) is accepted:

For SIPs, the NAV is the day's closing NAV on the SIP date regardless of the investment amount.

Growth NAV vs IDCW NAV

Most funds offer two options:

• Growth: No dividends paid; gains are reflected in rising NAV. All returns come from NAV appreciation. Best for long-term wealth creation and tax efficiency.
• IDCW (Income Distribution cum Capital Withdrawal): Fund periodically distributes some of its gains, which reduces the NAV by the distribution amount. Distributions are taxable as "other income" at slab rate. Generally less tax-efficient than Growth for most investors.

For most long-term investors, the Growth option is optimal. For investors who need periodic cash flow (retirees), SWP (Systematic Withdrawal Plan) from a Growth fund is usually more tax-efficient than the IDCW option. See our SWP guide for details.

What Actually Matters (Not NAV)

When evaluating a mutual fund, focus on:

• Returns vs benchmark and category peers over 1, 3, 5, and 10 years
• Risk-adjusted returns — Sharpe ratio, Sortino ratio, maximum drawdown
• Expense ratio — lower is better; a 0.5% difference compounds significantly over decades
• Fund manager track record and tenure at the fund
• Portfolio concentration — sector and stock bets, overlap with other funds you own
• AUM size — very large AUM can limit flexibility in small/mid-cap funds

NAV level is not on this list — it tells you nothing about whether the fund is a good investment. For a deeper dive into mutual fund categories, see our mutual fund categories guide.