Know all about NAV in Mutual Funds

3 MinsMar 8, 2023

You have been interested in investing in mutual funds, and you hear that the cut-off time for the same-day NAV is 3:00 pm. If you buy the fund before 3:00 pm, you will get the same day's NAV and if you buy the same after 3:00 pm, the next day's NAV will be applicable. This gets you thinking, is NAV the same as stock price? Does NAV determine the fund's performance? Will you benefit from buying a fund with a Rs. 10 NAV instead of a Rs. 50 NAV?  

Know all about NAV in Mutual Funds

This article will answer your questions about NAV and its significance for you as an investor. 

What is NAV?

The net asset value (NAV) is the combined market value of the securities portfolio held by the fund scheme after deducting expenses divided by the number of units in the scheme.

A mutual fund (MF) pools retail investors' money to buy stocks, bonds, REITs and other instruments at an institutional level.

For instance, a mutual fund collects Rs. 1,00,000 through a new fund offer (NFO) for scheme A, where every unit has a NAV of Rs 10. Here, the MF uses NAV to determine how many units it should create for the money collected.

Scheme A: Rs.1,00,000/ Rs.10 = 10,000 units

Ravi invests Rs. 10,000 in scheme A. Here, the NAV determines how many units Ravi would be allotted against his Rs. 10,000 investment.

Ravi’s portfolio = Rs. 10,000/ Rs. 10 = 1,000 units

Here the MF is using the NAV to determine the number of units.

How is NAV calculated?  

The MF scheme A goes live. It has invested in Nifty 50 stocks that are trading live on the stock exchange. The day starts with the overall investment of the scheme valued at Rs. 1,00,000. But at the day closing, the total value of the underlying stocks in scheme A increased to Rs. 1,03,000. Now the MF will calculate NAV as follows:

NAV of scheme A = Rs. 1,03,000/10,000 units = Rs. 10.30

As the overall scheme’s returns were 3%, so were Ravi’s investment returns. 

Ravi’s investment = 1,000 units x Rs 10.3 = Rs 10,300.

Here the NAV is used to determine the value of an investor’s holdings. 

Also Read: [Who should opt for Mutual Funds?]

The relevance of NAV to each party

You may wonder if NAV can be used to compare the performance of two schemes. Let’s understand with an example. Another MF has scheme B that invests in similar underlying securities but has a NAV of Rs. 50. That doesn’t make scheme B better than scheme A, as the NAV difference (in percentage) between the two schemes is similar.

Scheme AScheme B
InvestmentRs. 10,000Rs. 10,000
Buying NAVRs. 10Rs. 50
Number of Units1,000200
Selling NAVRs. 11Rs. 55
NAV Difference in %10%10%
Investment ValueRs. 11,000Rs. 11,000

Ravi invests Rs. 10,000 in each of the two schemes. Their value grows by 10%, and he sells his units. In scheme A, he gets Rs. 11,000 by selling 1,000 units, whereas in scheme B he gets the same amount by selling 200 units. NAV’s relevance is limited to creating the unit count and has no impact on the return or a mutual fund’s performance.

NAV versus stock price

Many investors confuse NAV with stock price as they both determine the buying and selling price of a unit/security. But stock prices are determined by the demand and supply of the stock and what investors are willing to pay for that one share.

NAV, on the other hand, is influenced by the change in the value of the underlying security. Hence, when buying a mutual fund, you must look at the fund’s performance, the fund manager’s experience as well as underlying securities.

As NAV keeps changing, the best way to invest in MFs is through SIP, as it can buy units regularly in peak and trough, thereby reducing your average unit cost. You can plan your investments using the Axis Bank SIP calculator and invest online in MF using Axis Bank Easy Access Savings Account.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision

Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. *T&C apply