What is NAV (Net Asset Value) and Why Does It Matter?

Created by Labh

Ever wondered what NAV means when looking at mutual funds? Let’s break it down into simple terms and explain why it’s important for your investment journey.

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NAV stands for Net Asset Value—but don’t let the name intimidate you! It’s simply the price of one unit of a mutual fund on any given day. Think of it like the price tag for buying mutual fund units.

1. What Exactly Is NAV?

NAV is the total value of all the assets in a mutual fund minus any liabilities, divided by the total number of units issued to investors.

In simpler words:

NAV = Total Assets – Total Liabilities ÷ Total Units

For example:
If the total value of a fund’s assets is ₹10 lakh, liabilities are ₹50,000, and there are 10,000 units issued, then:

NAV = (10,00,000 – 50,000) ÷ 10,000 = ₹95 per unit.

2. Why Is NAV Important?

NAV is important because it tells you:

• The current value of one unit of the mutual fund.
• How many units you’ll get when you invest.

If you invest ₹10,000 in a fund with an NAV of ₹50, you’ll get:

10,000 ÷ 50 = 200 units

3. Does a Low or High NAV Matter?

A common myth is that funds with lower NAVs are “cheaper” or better, but that’s not true. NAV doesn’t determine the fund’s quality or future growth.

Here’s why:
NAV simply reflects the price per unit at a point in time. A fund with a higher NAV might have been around longer and grown steadily. What truly matters is how the fund performs over time.

Example:

Fund A has an NAV of ₹20, and Fund B has an NAV of ₹200. If both deliver a 10% return in a year:

• Fund A’s NAV grows to ₹22.
• Fund B’s NAV grows to ₹220.

In both cases, you earned the same 10% return.

4. When Is NAV Calculated?

NAV is calculated at the end of each trading day based on the closing prices of all the assets in the mutual fund. This ensures that investors buy and sell units at a fair price.

Tip: NAV keeps changing daily based on market performance, so don’t get obsessed with small changes—focus on long-term growth.

5. How Does NAV Affect SIP Investments?

With SIPs, you invest a fixed amount regularly. Since NAV changes daily, you’ll buy mutual fund units at different prices each month. This is called rupee cost averaging and it works in your favor:

• When NAV is low, you get more units.
• When NAV is high, you get fewer units.

Over time, this helps balance out the cost of your investment.

Key Takeaways About NAV:

• NAV is the price of one mutual fund unit.
• It doesn’t determine how “cheap” or “expensive” a fund is. Performance matters more.
• NAV is calculated daily, and it changes with market movements.
• For SIP investors, NAV variations help average out investment costs over time.

Takeaway: Don’t get distracted by a mutual fund’s NAV alone. Focus on the fund’s performance, consistency, and how well it aligns with your goals. Whether the NAV is ₹10 or ₹100, it’s the returns that count in the end!