What is NAV in Mutual Funds & How is it Calculated?

Posted on Thursday, March 6th, 2025 | By IndusInd Bank

If you have ever looked at a mutual fund’s details, you will notice ‘NAV’ highlighted at all places. But, what is the NAV? 

The term ‘NAV’ stands for Net Asset Value and refers to the market value of a single unit of a mutual fund. While the NAV is not a direct parameter of how well a mutual fund is performing, it can help an investor get a clear idea of how many units they will receive on investing a particular amount into mutual funds. 

Hence, knowing what the NAV is in a mutual fund is important. Here’s an article to help you. 

Understanding the NAV in Detail

To understand NAV, we must first be clear on how mutual funds work. 

• When you invest in a mutual fund, you are allocated a certain number of units. These correspond to your contribution to the fund. 

• Each unit in a mutual fund has an NAV. When you multiply the NAV of all the mutual fund units you hold, with the number of units you have, you arrive at your total contribution to the mutual fund (not considering any liabilities). 

• Similarly, the NAV can also give you an idea of the amount of money you will receive if you redeem your mutual fund units. For instance, if the NAV is ₹100 and you are redeeming 50 units of the mutual fund, you will receive approximately ₹5000 (not considering any liabilities). 

• You can also use tools like the return calculator to get an estimate of how your investment will grow. This can help you determine how much you need to invest to reach a particular goal. 

• To calculate the NAV of a mutual fund, you must subtract the total liabilities from the total assets. Then, divide that value by the total number of shares in the fund. 

Calculating the NAV of a Mutual Fund

Now that you know what net asset value is, let’s see the formula to calculate it:

Net Asset Value of a Mutual Fund = (Total assets – Total Liabilities) ÷ Total Shares Outstanding 

Let’s illustrate the NAV calculation with an example:

Mutual Fund XYZ has a total asset value of ₹50 lakhs and liabilities worth ₹10 lakhs. It has 1 lakh outstanding shares. 

Considering the above, the NAV calculation for XYZ Mutual Fund will be as follows:

NAV = (50,00,000 – 10,00,000) ÷ 1,00,000 = 40 

Thus, the NAV of each unit of XYZ Mutual Fund is ₹ 40. 

Key Points About the NAV in Mutual Funds

After having looked at what NAV is, we shall now explore some of its key points to deepen our understanding:

1. Calculated Daily

The fund house calculates the NAV of a mutual fund daily at the closing time of the stock market. Once the NAV is calculated, it becomes the NAV for the next day. Thus, when you buy/sell mutual fund units is important, because the NAV changes daily.

2. High and Low NAVs

The NAV may give you an idea of how popular the fund is or how large its asset holdings are. However, it is not a direct indicator of how well a fund will perform. A high NAV does not necessarily mean the fund is doing well, or a fund with a low NAV doing worse. 

For instance, if you invest ₹1000 in two mutual funds with varying NAVs, the major difference will be in the number of units you are allocated. If the NAV is lower, it simply means you will receive more units. The returns you receive will not increase simply because you hold more units, as the NAV is low, too.

3. NAV vs Stock Price

Looking at the meaning of net asset value in a mutual fund, one may think it is the same as the stock price of a company. However, there are differences between the two. The stock price fluctuates based on demand and is a strong indicator of whether you should opt for the stock. On the other hand, the NAV is undeterred by demand. It is also not a determining factor for whether you should invest in a mutual fund. 

Also Read: How To Buy Mutual Funds Online & What to Consider before the Purchase?

Conclusion

Knowing what the net asset value is and how to calculate it is crucial as it helps give you a clear idea of your holdings within a mutual fund. However, to know whether to invest in a mutual fund, one must look at the fund’s total returns over a period. Also, consider other aspects like risk, price-to-earnings ratio, and so on. 

Choosing the right mutual fund distributor, like IndusInd Bank, can also make a major difference in your investment journey. With IndusInd Bank, you can invest easily with just a few clicks and with the assurance of a transparent fee structure. So, start investing with IndusInd Bank today! 

Disclaimer:The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.