What Is NAV and Why Does It Keep Changing
"This fund's NAV is ₹500. That other one is only ₹15. The cheaper one must be a better deal, right?"
This is one of the most common misconceptions we hear in our Belong WhatsApp community. And it's completely wrong.
NAV isn't a price tag in the traditional sense. A ₹500 NAV fund isn't "expensive," and a ₹15 NAV fund isn't "cheap."
Understanding what NAV actually means, and why it changes every day, is fundamental to making smart mutual fund decisions.
This guide breaks down NAV in plain terms, explains why it fluctuates, and clears up the myths that trip up even experienced investors.
What Does NAV Mean?
NAV stands for Net Asset Value. It represents the per-unit price of a mutual fund scheme. When you buy or sell mutual fund units, the transaction happens at the prevailing NAV.
Think of it this way: a mutual fund pools money from thousands of investors and buys stocks, bonds, or other securities.
The total value of everything the fund owns, minus any liabilities, divided by the number of units held by investors, gives you the NAV.
NAV represents the price at which a mutual fund may be bought by an investor or sold back to a fund house.
If a fund's total assets are worth ₹950 crore and it has 10 crore outstanding units, the NAV is ₹95 per unit.
The NAV Formula
The calculation is straightforward:
NAV = (Total Assets - Total Liabilities) / Number of Outstanding Units
Where:
Total Assets = Market value of all securities (stocks, bonds) + cash + accrued dividends + receivables
Total Liabilities = Fund expenses + amounts owed to creditors
Outstanding Units = Total units held by all investors
The NAV of a fund is calculated by dividing the net assets of a mutual fund scheme by the total number of outstanding units on any particular date.
👉 Tip: You don't need to calculate NAV yourself. Fund houses publish it daily on their websites and on AMFI's portal. Focus on understanding what it means, not the math.
Explore fund options through our mutual funds tool.
When Is NAV Calculated?
Unlike stock prices that change every second during trading hours, the Net Asset Value of a fund is calculated every day after the stock market closes at 3:30 PM.
Here's the sequence:
Markets close at 3:30 PM IST
Fund house calculates total asset value based on closing prices
Liabilities and expenses are subtracted
Result is divided by outstanding units
NAV is published by evening, usually by 9-11 PM
A mutual fund's NAV cannot be calculated during stock market hours as the underlying security's price changes constantly.
This is why mutual funds don't have real-time pricing like stocks. You buy or sell at the end-of-day NAV, not at whatever price exists when you click "submit."
Why Does NAV Change Every Day?
NAV moves because the underlying investments move. It's that simple.
When the stocks in an equity fund rise in value, the fund's total assets increase, pushing NAV higher. When those stocks fall, NAV drops.
Example: A fund holds shares of Reliance, HDFC Bank, and Infosys. If these stocks collectively rise 2% today, the fund's NAV will rise approximately 2% (minus expenses). If they fall 3%, NAV falls roughly 3%.
NAV moves up or down depending on how the underlying investments perform.
For debt funds, NAV changes based on bond prices and interest rate movements. When interest rates fall, bond prices rise, pushing debt fund NAVs higher.
Factors That Cause NAV Fluctuations
Several elements influence daily NAV movements:
Market Performance: The primary driver. Bull markets push equity fund NAVs up; bear markets pull them down.
Corporate Actions: Dividends declared by stocks in the portfolio add to fund assets, slightly increasing NAV.
Expense Ratio: Daily fund expenses (management fee, administrative costs) are deducted from assets, creating a small daily drag on NAV.
New Investments/Redemptions: When investors buy or redeem units, the fund buys or sells securities accordingly. Large flows can marginally impact NAV through transaction costs.
Currency Movements: For international funds, exchange rate changes affect the rupee value of foreign holdings.
Compare how different investments behave using our NRI FD rates tool.
The 3 PM Cut-Off Rule
Timing matters when you transact. SEBI has set cut-off times that determine which day's NAV applies to your transaction.
For equity and debt funds:
Order before 3 PM with funds received: Same day's NAV
Order after 3 PM: Next business day's NAV
For liquid funds:
Order before 1:30 PM: Same day's NAV
Order after 1:30 PM: Next day's NAV
To secure the NAV of a particular business day, both the purchase application and the corresponding funds must be received by the mutual fund before 3:00 PM.
👉 Tip: If markets are falling and you want to buy at a lower NAV, submit your order after 3 PM. You'll get the next day's NAV, which might be lower if the decline continues. But this is speculative and rarely worth the effort.
High NAV vs Low NAV: The Big Misconception
This trips up countless investors. A fund with NAV of ₹500 isn't "expensive" and a fund with NAV of ₹10 isn't "cheap."
Here's why the NAV level doesn't matter:
Though Scheme A appears cheaper as 10,000 units can be acquired while only 2,000 of Scheme B's units can be acquired for the same price, the difference isn't significant for returns.
As long as the schemes deliver the same returns, high or low NAV doesn't affect your outcome.
Example: You invest ₹1 lakh each in Fund A (NAV ₹10) and Fund B (NAV ₹100).
Fund A: You get 10,000 units
Fund B: You get 1,000 units
Both funds deliver 15% return over a year.
Fund A: NAV becomes ₹11.50, your investment = ₹1,15,000
Fund B: NAV becomes ₹115, your investment = ₹1,15,000
Same result. The number of units you own is irrelevant. What matters is the percentage return.
The NAV of a mutual fund unit is derived from the value of the underlying securities and the accumulated profits since scheme launch.
Two different mutual fund schemes may have exactly the same portfolio of securities and yet one may be offered at par value (NAV of ₹10) while the NAV of the other might be more than ₹100.
Why New Fund Offers (NFOs) Aren't "Cheaper"
A related myth: NFOs launching at ₹10 NAV are bargains.
This is false. An NFO's ₹10 NAV is arbitrary. It simply means the fund is starting fresh with no accumulated gains or losses.
A mature fund with ₹200 NAV that has delivered consistent returns is likely a better choice than an untested NFO at ₹10.
Some investors think that NFOs are cheap because they are issued at NAV of ₹10. However, a mutual fund scheme's NAV is not an appropriate indicator of its performance.
What matters is the fund manager's track record, investment strategy, expense ratio, and how it fits your goals. NAV level is irrelevant.
Learn more in our guide on how to choose mutual funds.
NAV and Your SIP: How It Works
In a Systematic Investment Plan (SIP), you invest a fixed amount at regular intervals. Each installment buys units at that day's NAV.
Example: Your ₹10,000 monthly SIP:
Month 1: NAV ₹50 → 200 units purchased
Month 2: NAV ₹40 → 250 units purchased
Month 3: NAV ₹55 → 181.8 units purchased
This is rupee cost averaging. When NAV is low, you automatically buy more units. When NAV is high, you buy fewer units. Over time, this averages out your purchase cost.
In the context of SIP, investors contribute a fixed amount at regular intervals, and the units are allocated based on the prevailing NAV. The disciplined approach of SIP minimizes the impact of market volatility.
SIP investors shouldn't worry about daily NAV movements. The whole point is that short-term fluctuations get smoothed out over years of consistent investing.
Understand SIP strategies in our guide on SIP vs lump sum investing.
Is Expense Ratio Included in NAV?
Yes. The expense ratio is deducted daily from the fund's assets before calculating NAV. You never see a separate charge because it's already reflected in the NAV you see.
Example: A fund earns 12% gross return but has a 1.5% expense ratio. The NAV growth you see reflects approximately 10.5% (12% - 1.5%).
This is why expense ratios matter. A fund with a 2.5% expense ratio needs to earn 2.5% more just to match a fund with near-zero expenses. Over 20 years, this difference compounds significantly.
👉 Tip: Always check the expense ratio in the scheme documents. Direct plans have lower expense ratios than regular plans, typically by 0.5-1%.
Track market movements with Gift Nifty.
NAV and Dividends: What Happens?
When a mutual fund declares a dividend (now called IDCW - Income Distribution cum Capital Withdrawal), the payout comes from the fund's assets. This reduces NAV proportionally.
Example: Fund NAV is ₹50. It declares ₹5 dividend per unit. After the dividend is paid, NAV drops to approximately ₹45.
You're not getting "free money." The dividend simply converts part of your investment into cash. Your total wealth (units × NAV + dividend received) remains the same.
This is why growth option is generally more tax-efficient. No dividend means no immediate tax liability. NAV keeps growing, and you pay tax only when you redeem.
How to Check NAV
Multiple free sources provide daily NAV updates:
AMC Websites: Each fund house publishes NAVs for all schemes by end of day.
AMFI Website: The Association of Mutual Funds in India (amfiindia.com) has NAVs for all mutual funds in one place.
Investment Platforms: Apps like Groww, Zerodha, and others show real-time NAV alongside your holdings.
Financial Portals: Value Research, Moneycontrol, and ET Money display NAV history and trends.
Most investors don't need to track NAV daily. Checking monthly or quarterly is sufficient for long-term investments.
Explore options through our GIFT City mutual funds tool.
NAV Changes: What NRIs Should Know
For NRIs investing from the UAE or UK, NAV fluctuations carry an additional dimension: currency risk.
Your fund's NAV might rise 10% in rupees. But if the rupee depreciates 4% against the dirham during the same period, your effective return in AED is closer to 6%.
This is why many UAE-based NRIs explore GIFT City investments, where USD-denominated funds eliminate currency conversion complications.
DTAA Impact: NAV changes trigger capital gains when you redeem. For UAE residents, these gains are taxed only in India since the UAE has no personal income tax. The India-UAE DTAA prevents double taxation.
Understand the full picture in our guide on mutual fund taxation and DTAA benefits for NRIs.
When NAV Goes Negative (Daily Change, Not Absolute)
While NAV itself can never go below zero, the daily change can be negative. A negative NAV change simply means the fund lost value that day.
A negative net asset value calculation on a given day indicates that the fund has lost money that day.
While it is not possible for the actual net asset value per share to ever go below zero, it is possible for the fund to experience a negative NAV change.
Don't panic over single-day negative movements. Markets fluctuate. What matters is long-term performance over 3, 5, and 10 years.
Explore allocation strategies through our GIFT City Alternative Investment Funds tool.
Common NAV Myths Debunked
Myth 1: "Low NAV funds are better investments."
Reality: NAV level has zero correlation with future returns. A ₹500 NAV fund can outperform a ₹10 NAV fund easily.
Myth 2: "I should buy when NAV is low and sell when it's high."
Reality: This is market timing, which rarely works. Consistent SIP investing beats timing attempts for most investors.
Myth 3: "High NAV means the fund is overvalued."
Reality: High NAV often means the fund has delivered strong returns over years. It's a sign of good historical performance, not overvaluation.
Myth 4: "NFOs at ₹10 NAV are bargains."
Reality: An NFO's ₹10 NAV is arbitrary. Existing funds with proven track records are usually safer bets.
What Actually Matters More Than NAV
Instead of obsessing over NAV, focus on:
Returns vs Benchmark: Is the fund beating its benchmark consistently?
Expense Ratio: Lower expenses mean more returns in your pocket.
Fund Manager Track Record: Has the manager delivered across market cycles?
Risk-Adjusted Returns: Sharpe ratio and alpha tell you if returns justify the risk taken.
Investment Objective Match: Does the fund's strategy align with your goals?
An investor should not care about how many units they own. Instead, they should see how much their investment has appreciated in value. The appreciation of a scheme NAV is more important than the NAV itself.
Key Takeaways
NAV is simply the per-unit price of a mutual fund, calculated daily after market close. It changes because the underlying securities change in value.
High NAV doesn't mean expensive; low NAV doesn't mean cheap. Your returns depend on percentage change in NAV, not the absolute number.
Don't chase low-NAV funds or NFOs thinking they're bargains. Focus on fund performance, expense ratios, and manager track record instead.
For SIP investors, daily NAV fluctuations are irrelevant because rupee cost averaging smooths out short-term volatility.
Thousands of NRIs discuss these fundamentals daily in our WhatsApp community. Join them for practical insights on building a solid mutual fund portfolio.
Ready to start investing? The Belong app helps you explore mutual fund options, compare NRI FD rates, and track your investments with clear performance metrics.
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