"This fund's NAV is only ₹12 — it must be cheaper than the one at ₹250." It is one of the most common beliefs among new investors, and it is not correct. Let's understand what NAV really tells you, and what it does not.
Key points
- NAV is the per-unit value of a mutual fund scheme, calculated every business day.
- A low NAV does not mean a fund is "cheap", and a high NAV does not mean it is "expensive".
- What matters is the percentage change in NAV, not its absolute level.
What is NAV?
Net Asset Value (NAV) is the value of one unit of a mutual fund scheme. It is calculated by taking the total market value of everything the scheme owns, subtracting its liabilities and expenses, and dividing by the number of units investors hold.
NAV = (Total assets − Liabilities) ÷ Units outstanding
Most schemes start at an NAV of ₹10 at launch. After that, the NAV moves up or down with the value of the underlying investments.
Why a lower NAV is not "cheaper"
Unlike a share price, NAV is not driven by demand and supply for the fund's units. It simply reflects the value of what the fund already holds. Look at this simple illustration:
| Fund A | Fund B | |
|---|---|---|
| NAV today | ₹20 | ₹200 |
| You invest | ₹10,000 | ₹10,000 |
| Units you get | 500 | 50 |
| Portfolio grows by | 10% | 10% |
| New NAV | ₹22 | ₹220 |
| Value of your investment | ₹11,000 | ₹11,000 |
In both cases, your ₹10,000 becomes ₹11,000. Owning more units of the low-NAV fund made no difference — the percentage growth of the portfolio is what counts.
When comparing funds, compare their category, objective, risk level, consistency and costs — not their NAV.
Why NAVs differ so much between funds
- Age of the fund: a scheme launched 20 years ago has had more time for its NAV to grow from ₹10.
- Dividend (IDCW) payouts: when a fund pays out income, its NAV falls by that amount.
- Plan type: Direct and Regular plans of the same scheme have different NAVs because their expense ratios are different.
Which NAV will you get?
You don't buy at the NAV you see today on a website. Your purchase or redemption is processed at the NAV applicable based on the cut-off time and, for purchases, when the money actually reaches the fund. Cut-off times are set by SEBI and are mentioned in the scheme documents.
What about NFOs at ₹10?
A New Fund Offer (NFO) usually has units priced at ₹10. This does not make it a bargain compared to an existing fund with a higher NAV. An NFO is a new scheme without a track record — evaluate it on its objective, strategy and suitability for you.
The takeaway
NAV is a measuring stick, not a price tag. Track how it changes over time, and use it to calculate your returns — but never choose a fund simply because its NAV looks low.
Questions about a fund you're looking at? Reach out and I'll help you understand it.