Things You Need To Know About Mutual Fund NAV

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Net Asset Value (NAV) is a basic concept related to mutual funds. Simply put, the net asset value is representative of the per-unit market value of a mutual fund and is also the price at which investors purchase and sell mutual fund units. Unlike shares, mutual funds are sold to investors in terms of units. Gaining a grasp of mutual fund NAV is vital for any investor considering mutual fund investment. 


  • Calculation of Mutual Fund NAV
  • NAV and Returns from Mutual Funds
  • Fund Flows and NAV of Mutual Funds
  • Some Misconceptions About NAV
  • Mutual Fund Types and NAV
  • Expense Ratio and NAV
  • Market Timing and NAV
  • Dividends and NAV

Calculation of Mutual Fund NAV

You can calculate the net asset value of a mutual fund by dividing the total net assets in the fund by the amount of outstanding fund units. The total net assets of the fund are the market value of all the fund’s securities, plus cash or any other assets, minus liabilities, if any. At the close of each trading day, the net asset value is calculated and this reflects the closing prices of the securities that the fund’s portfolio contains. 

Additional ReadThe Role of Mutual Funds in Retirement Planning: Building a Secure Future

NAV and Returns from Mutual Funds

Some investors evaluate the performance of a mutual fund based on changes in the mutual fund NAV, studied over a period. An increase in the NAV stands for the fact that the underlying asset value in the mutual fund has risen. Consequently, this is indicative of potentially positive gains. In contrast, if the NAV decreases, negative returns may be implied. Nonetheless, you should note that NAV does not represent capital gains distribution or dividends. These are also important components of a mutual fund’s total returns. 

Fund Flows and NAV of Mutual Funds

The NAV can also give you clues into the flow of funds in a mutual fund. Let’s say that several investors buy into the mutual fund, creating new units. In such a circumstance, the total assets of the fund increase, and this may result in an increase in the mutual fund NAV. On the other hand, in case investors sell mutual fund units, the total assets will drop, bringing down the NAV. 

Some Misconceptions about NAV

A common misconception surrounding NAV is that if the NAV is low, the fund is cost-effective and you should invest. This may not be valid and a low NAV may simply indicate that the fund has few assets or is a new fund. 

Mutual Fund Types and NAV

The role of mutual fund NAV varies from one mutual fund to another and changes with different kinds of mutual funds. For instance, if you look at open-ended mutual funds, you will discover that the NAV is relevant as it is reflective of the price at which mutual fund units are purchased and sold. In another instance, for closed-ended mutual funds, traded on exchanges, the fund’s market price can deviate from the NAV, and this leads to opportunities for arbitrage. 

Expense Ratio and NAV

All mutual funds and ETFs charge their investors an annual fee. This is the expense ratio of the funds. The expense ratio is subtracted from the net asset value daily. A small fund with a low expense ratio may have a low NAV, and a larger fund may have a high expense ratio.

Market Timing and NAV

Since the mutual fund NAV is calculated at the close of every trading day, you cannot purchase or sell mutual fund units at a particular market price within the day. Mutual funds are not like stocks that can be traded within the day, at any time. This is a feature of mutual funds that safeguards investors from market volatility. Nonetheless, it also restricts an investor’s ability to take advantage of price fluctuations throughout the day.

Dividends and NAV

Mutual funds may generate dividends (as many invest in equity). When this happens, the NAV of the mutual fund decreases by the amount of the dividend per unit. This happens as the dividend is paid out from mutual fund assets. Nonetheless, the total value for the investor stays the same because the payment of the dividend is in cash or it may be reinvested in extra units in the mutual fund.

Final Lines on NAV

The NAV is a concept that is important in the realm of mutual fund investment. It helps you to understand mutual funds before you invest. It also offers insights into the performance of a fund but is not the only indicator of how well a fund is doing. While assessing the potential of any mutual fund investment, an individual has to consider several factors like the fund manager, the investment strategy of the fund, etc. Furthermore, decisions to ultimately invest in any kind of mutual fund depend on the considerations of the investor and their financial goals and requirements.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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