The formula, and the only two things in it
NAV is what one unit of the fund is worth. Everything the fund owns, minus everything it owes, divided by the number of units outstanding.
| Component | What it is |
|---|---|
| Assets | Market value of every security held, plus cash and receivables |
| Liabilities | Fees accrued and payables — including that day's slice of the expense ratio |
| Units outstanding | Every unit held by every investor in the scheme |
Struck once per business day, after the market closes. It is not a quoted price and it is not set by demand for the fund — it is a computed value, and the only thing that moves it is what the portfolio is worth.
Why the level is arbitrary
Here is the step that resolves the whole confusion.
The denominator is units outstanding, and units are created whenever money comes in. Nothing constrains how many exist. A fund that has taken in ₹100 crore might have issued 10 crore units at around ₹10, or 20 lakh units at around ₹500. Same portfolio, same manager, same holdings — the NAV differs by a factor of fifty purely because of how the units were divided up at launch and how much has come in since.
A share price is not like this. A company has a fixed number of shares outstanding, so the price per share carries real information about what the market thinks the whole company is worth. A fund creates units on demand, so its per-unit value carries no such information. The instinct that transfers across from stocks is exactly what goes wrong here.
The arithmetic, in full
Two funds. Identical portfolios. You have ₹60,000.
| Fund A | Fund B | |
|---|---|---|
| NAV today | ₹12 | ₹450 |
| Units you receive for ₹60,000 | 5,000 | 133.33 |
| Portfolio rises 10% — new NAV | ₹13.20 | ₹495 |
| Your value | ₹66,000 | ₹66,000 |
| Your gain | ₹6,000 | ₹6,000 |
You hold thirty-seven times as many units in Fund A and each one is worth thirty-seven times less. The two cancel exactly, because your return depends on the percentage change in NAV and not on its level.
“More units for the same money” is true and completely without consequence. It is the financial equivalent of preferring a pizza cut into twelve slices over the same pizza cut into six.
The ₹10 trap
This is where the misconception costs real money.
A new fund offer typically issues units at ₹10. Set beside an established scheme trading at ₹380, the new one looks cheap, and it is regularly sold on exactly that framing — get in at the ground floor, the NAV has nowhere to go but up.
There is no ground floor. The ₹10 is a starting denominator chosen by convention. What the NFO genuinely lacks is the thing you actually needed: a track record. The established scheme has years of NAV history you can compute rolling returns from, drawdowns you can inspect, and a benchmark comparison you can run. The new one has a mandate document and a marketing deck.
That is not an argument that new funds are bad. It is an argument that “cheap” is the wrong reason to prefer one, and that you are giving up evidence to buy it.
When NAV is struck, and why you cannot time it
NAV is computed after the close, from that day's closing prices. So you never know the price you are transacting at when you place the order — it does not exist yet.
Which day's NAV you get depends on the cut-off time and, for most schemes, on when the money actually reached the fund. An order placed comfortably before the cut-off with a transfer that clears the next morning gets the next day's NAV. Timings differ for liquid and overnight funds and have been revised more than once, so confirm the current rule rather than working from an old article.
Two practical consequences. You cannot sell a fund intraday to escape a fall — the mechanism has no intraday price. And on a large transaction you are accepting an unknown price, which is an argument for splitting size rather than for trying to pick the day.
What to look at instead
If NAV level is noise, what carries signal?
- Percentage change over periods you choose, not the level.
- Rolling returns — the return from every possible start date across a window, rather than one trailing figure that depends on where the window happened to end. Read the worst window and the share of windows that lost money, not the average.
- Performance against the scheme's own benchmark, which is the only comparison that says whether active management earned its fee. A category rank compares the fund with its peers and can look excellent while the fund trails its index.
- Drawdown — how far it fell and how long recovery took. This is what determines whether you would actually have stayed invested.
- Cost — the expense ratio, and whether you hold a direct or regular plan.
Running the comparison properly
All of the above is computation on public NAV data, which is why it should not require trusting anyone's summary.
FNOTrader's Mutual Funds app holds the full AMFI history — around 34 million NAV rows, updated nightly at 22:30 IST — and computes rolling-return distributions, benchmark-relative performance and drawdown from that series directly, with the formulas published in the user guide.
Common questions
What does NAV mean in a mutual fund?
Net asset value — the value of one unit of the scheme. It is everything the fund owns minus everything it owes, divided by the number of units outstanding, computed once each business day after the market closes.
Is a fund with a lower NAV cheaper?
No. The NAV level is arbitrary because units are created on demand, so the number of them — and therefore the value of one — depends only on how the fund was launched and how much money has come in. Your return depends on the percentage change in NAV, not its level.
Should I buy a new fund offer at ₹10 NAV?
The ₹10 is a starting denominator chosen by convention, not a discount, and there is no ground floor to get in on. What an NFO does lack is a track record — no NAV history to compute rolling returns, drawdowns or benchmark comparison from, which is the evidence you would otherwise use.
How is NAV calculated?
Total assets — the market value of every security held, plus cash and receivables — minus total liabilities, including that day's accrued expense ratio, divided by the total number of units outstanding across all investors in the scheme.
Why can't I sell a mutual fund during the day?
Because an open-ended fund has no intraday price. NAV is struck once, after the close, from that day's closing prices, and every accepted order for that day transacts at that single NAV regardless of when it was placed.
Which NAV will I get for my purchase?
The one determined by the cut-off time and, for most schemes, by when the money actually reached the fund. Placing an order before the cut-off is not sufficient if the transfer clears the following morning — in that case the next business day's NAV applies.
Does the expense ratio affect NAV?
Yes. The expense ratio is accrued daily as a liability and deducted before NAV is published, which is why you never receive a bill for it and why published returns are already net of it.
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