Understanding NAV: The Daily Price Tag of Your Mutual Fund Investment
Net Asset Value, commonly called NAV, is the basic number that tells investors what a mutual fund unit is worth on a given day. While it often looks simple, NAV plays an important role in tracking performance, making investment decisions, and understanding how mutual funds actually work.
What Exactly Is NAV
NAV stands for Net Asset Value. In simple words, it is the per unit value of a mutual fund. It represents the price at which investors buy or sell units of a fund. Unlike shares that trade continuously during market hours, NAV is calculated once a day after markets close.
How NAV Is Calculated
To calculate NAV, the fund house first finds the total value of all assets held by the fund. This includes shares, bonds, cash, and other investments. From this total, all liabilities and expenses are subtracted. The remaining amount is then divided by the total number of outstanding units. The result is the NAV for that day.
For example, if a fund’s total assets after expenses are worth Rs 100 crore and there are 10 crore units, the NAV will be Rs 10 per unit.
Why NAV Changes Every Day
NAV changes daily because the value of the underlying investments keeps moving. If the shares or bonds held by the fund rise in value, the NAV goes up. If markets fall, the NAV declines. Expenses charged by the fund also slightly reduce NAV over time.
Does a Low NAV Mean a Cheaper Fund
This is a common misunderstanding. A low NAV does not mean the fund is cheap, nor does a high NAV mean it is expensive. NAV only shows the current value per unit. What truly matters is how much the fund grows over time and how consistently it performs compared to its benchmark.
NAV and Your Investment Returns
Your returns depend on the difference between the NAV at which you invest and the NAV when you redeem your units. For SIP investors, units are bought at different NAVs over time, which helps average the cost and reduce market timing risk.
Why Investors Should Track NAV
NAV helps investors monitor performance, understand fund growth, and keep records for taxation. However, it should never be the only factor while choosing a mutual fund. Investment goals, risk level, fund strategy, and past consistency matter much more.
The Bottom Line
NAV is best seen as an indicator, not a decision maker. It tells you where your mutual fund stands today, but long term wealth creation depends on patience, discipline, and choosing the right fund for your financial journey.
