Net Asset Value (NAV)

A share has a price that flickers every second the market is open. A mutual fund does not. Instead it has a NAV, short for Net Asset Value, which is the value of one unit of the fund. It is the number you are charged when you invest and the number you are paid when you withdraw, so it is worth understanding clearly.

A fund holds dozens of shares or bonds. Add up the market value of everything it owns, subtract what it owes, and divide by the number of units investors hold. That single figure is the NAV. It is struck once at the end of each business day, after the market closes and every holding can be valued at its closing price.

Suppose a fund owns shares and cash worth ₹300 crore, owes ₹0 crore in pending expenses, and has issued 20 crore units. Its NAV is ₹300 crore divided by 20 crore units, which is ₹15 per unit. Invest ₹15,000 today and you receive 1,000 units.

Many beginners believe a fund with a ₹10 NAV is cheaper, and therefore better value, than one with a ₹100 NAV. This is the single most common mistake about funds. The NAV is just the value of one unit. A lower NAV simply means you receive more units for the same money. What your investment is worth is units multiplied by NAV, and that depends only on how much the fund grows in percentage terms.

Adjust the fund's total holdings and the units it has issued to set the NAV. Then see what your own units are worth.

A fund closes Monday with holdings worth ₹500 crore and 25 crore units, so its NAV is ₹20.00. On Tuesday the shares it owns rise about 2 percent on average, lifting the holdings to ₹510 crore. No new units are created.

The NAV rose 2 percent, exactly tracking the holdings. If you owned 1,000 units, your value moved from ₹20,000 to ₹20,400. This is why the only number that matters is the percentage change, not the NAV level.