NAV in Mutual Funds: Powerful Guide to Understand NAV Allotment & Returns
NAV in mutual funds stands for Net Asset Value. It is the per-unit price of a mutual fund scheme and plays a key role in investment and redemption decisions. If you’re planning to start or already investing in mutual funds, understanding NAV is essential for making informed choices.
Every mutual fund holds a basket of assets like stocks, bonds, and cash. The NAV reflects the total market value of these assets minus any liabilities, divided by the number of outstanding units.
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In this Article
Why Does NAV Matter?
NAV acts like a price tag for a mutual fund. It helps investors track the value of their investments and assess the performance of a scheme.
Unlike stock prices, which change every second during market hours, NAV is calculated at the end of each business day. Based on your investment or withdrawal time, NAV determines the number of units allotted or redeemed.
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Key Point: A higher or lower NAV does not indicate better or worse performance. What really matters is how much the NAV grows over time.
How is NAV Calculated?
NAV is derived using the following formula:
NAV = (Total Assets – Total Liabilities) / Total Outstanding Units
Let’s break this down:
- Assets include stocks, bonds, cash, and receivables.
- Liabilities are fees, expenses, and any pending payments.
- Outstanding Units are the number of mutual fund units held by all investors.
Example:
If a mutual fund holds ₹100 crore in assets, has ₹2 crore in liabilities, and 10 crore outstanding units, the NAV will be:
(100 – 2) / 10 = ₹9.8 per unit.
How NAV Allotment Works in Mutual Funds
NAV allotment determines the value at which your investment is processed. The cutoff time plays a vital role in deciding which day’s NAV is applicable.
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NAV Cutoff Timings
| Fund Type | Cutoff Time | NAV Allotted |
|---|---|---|
| Liquid & Overnight Funds | 1:30 PM | Same-day NAV if invested before 1:30 PM and payment is credited |
| All Other Mutual Funds | 3:00 PM | Same-day NAV if invested before 3:00 PM and payment is credited |
| After Cutoff Time | — | Next business day’s NAV is applicable |
NAV Allotment Based on Investment Mode
The method of investment also influences when NAV is allotted:
Lumpsum Investments
- Online Transfer (UPI/NEFT/RTGS): NAV is based on the day payment reaches the AMC.
- Cheque Payments: NAV is assigned based on the cheque realization date.
SIP (Systematic Investment Plan)
For SIPs, NAV is allotted based on the date the payment hits the mutual fund account—regardless of the payment mode.
Switch Transactions
NAV is based on when the source fund disburses the amount. So, it may differ from a fresh investment.
Common Misconceptions About NAV
A widespread belief is that funds with a lower NAV are cheaper and may deliver better returns. However, NAV is merely a per-unit price and not an indicator of future performance.
For example, two funds with NAVs of ₹10 and ₹100 can both deliver the same return percentage. What matters is the fund’s growth over time, not its starting value.
NAV vs. AUM: What’s the Difference?
- NAV is the per-unit value of a mutual fund.
- AUM (Assets Under Management) is the total market value of all investments managed by the fund.
NAV = AUM / Total Units
Understanding both gives you a clearer picture of a fund’s scale and performance.
Key Factors to Consider Alongside NAV
While NAV helps determine investment value, don’t rely on it alone. Evaluate:
- Past Performance
- Fund Manager’s Track Record
- Risk Metrics like Standard Deviation or Sharpe Ratio
- Expense Ratio
- Investment Objective of the Fund
NAV in mutual funds is a foundational concept that helps investors track value and plan transactions. However, your investment decision should not hinge solely on the NAV figure. Take a holistic view by looking at historical returns, market conditions, and fund objectives to align with your financial goals.
Frequently Asked Questions
How often is NAV updated?
NAV is calculated and published once daily, typically at the end of the trading day.
Can NAV go negative?
No, NAV cannot be negative. It can fall if the market value of underlying assets drops, but it remains a non-negative value.
Do all mutual funds follow the same NAV cutoff?
Most follow the 3:00 PM cutoff, except for liquid and overnight funds, which have a 1:30 PM cutoff.
Does a higher NAV mean the fund is expensive?
No. A high NAV means the fund has grown in value over time. The entry NAV doesn’t impact the percentage return you get.
Where can I check NAV values?
You can view NAVs on the official website of the mutual fund house, the Association of Mutual Funds in India (AMFI), or trusted financial platforms.
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