What Is NAV in Mutual Funds? (And the Big Myth)

Meera is about to make her first mutual fund investment. She's got two funds open in two browser tabs. Fund A has a NAV of ₹12. Fund B has a NAV of ₹480.

She stares at the screen and thinks what almost every beginner thinks: "₹12 is so cheap, I'll get way more units. Fund B at ₹480 is expensive. Obviously Fund A is the better deal."

She's about to make a decision based on a number that tells her nothing about which fund is better. And she's not alone — this is probably the single most common misunderstanding in Indian mutual fund investing.

So what actually is NAV?

NAV stands for Net Asset Value. It's just the price of one unit of a mutual fund on a given day.

Here's the formula, minus the intimidation: take everything the fund owns (all its stocks, bonds, cash), subtract what it owes (expenses, fees), and divide by the total number of units held by all investors. That per-unit number is the NAV.

Unlike a stock price that flickers every second, a mutual fund's NAV is calculated just once a day, after markets close. So whether you invest at 10 AM or 2 PM, you get the same NAV for that day (as long as you're within the cut-off time).

The myth that costs beginners money

Back to Meera. Let's actually run her numbers and kill the myth for good.

Say she invests ₹12,000 in each fund:

• Fund A at NAV ₹12 → she gets 1,000 units.
• Fund B at NAV ₹480 → she gets 25 units.

Yes, Fund A gives her far more units. But units are just slices — what matters is what happens to the value. Now suppose both funds grow 15% over the next year:

• Fund A: NAV rises from ₹12 to ₹13.80. Her 1,000 units are now worth ₹13,800.
• Fund B: NAV rises from ₹480 to ₹552. Her 25 units are now worth ₹13,800.

Exactly the same. The number of units is a mirage. Your returns depend on the percentage growth of the fund, not on whether one unit costs ₹12 or ₹480.

A low NAV doesn't mean a fund is cheap. It just means it's slicing the same pizza into smaller pieces.

An analogy your family will get

Think of two water tanks. Tank A is measured in litres, Tank B in millilitres. Tank B will always show a bigger number, but that doesn't mean it holds more water — it's just a different unit of measurement. NAV is the unit. What you actually care about is how fast the water level rises, i.e. the fund's growth rate.

This is also why a brand-new fund (an NFO) launching at ₹10 isn't a 'ground-floor bargain'. That ₹10 is just a starting label, not a discount.

So what should you actually look at?

If NAV isn't the scoreboard, what is? A few things that genuinely matter far more:

• The fund's long-term returns and consistency (look at 5-year and rolling returns, not last month).
• Its expense ratio — the annual fee quietly eating your returns.
• Whether you're in a direct or regular plan — direct plans have lower costs and, yes, a higher NAV, which is actually a good thing.
• The fund's category, risk level, and how it fits your goal.

Does NAV matter at all, then?

It does — just not the way beginners think. NAV is how you track your investment's value over time and how your buy/sell price is calculated. When you do a SIP, each instalment simply buys units at that day's NAV — more units when it's low, fewer when it's high. That's rupee cost averaging doing its quiet work. Want to see how those units stack up over a decade? Play with our SIP Calculator.

So the next time you're comparing two funds and one has a 'low' NAV, remember Meera's two tabs. The number on the price tag is not the deal — the growth behind it is. NAV tells you the price of a slice, never the quality of the pizza.

Over to you: did you ever pick a fund because its NAV looked 'cheaper'? Almost everyone has at some point — no shame in it. This article is educational and not investment advice.