How is NAV calculated for a mutual fund, and is it important?

How is NAV calculated for a mutual fund, and is it important? 1

Net Annual Value (NAV) is the market value of all the securities that the mutual fund scheme has invested in. NAV indicates the performance of mutual funds and is an important performance parameter for investors. If you are investing in a mutual fund scheme, the NAV at the time of purchase is the price you pay per unit of the system. In the case of a New Fund Offer, the scheme is generally launched at an offer price of Rs 10.


How is NAV calculated?

Mathematically, the formula for calculating NAV is,

(Total Assets – Total Liabilities)/Total number of units outstanding.

If you have invested Rs 1 lakh in a mutual fund scheme with a NAV of Rs 100, you will own 1,000 units of the project. As the Asset Under Management (AUM) market value increases, the NAV will increase. This increase in NAV will be your earning from the mutual fund investment.

All calculations are “as on date” basis so that the NAV may change every day. NAV cannot be the only criteria while purchasing units of mutual funds or selecting a SIP. This is because a lower NAV doesn’t mean an insufficient mutual fund; it just means that the scheme and its AUM are still growing.

The Total Assets mentioned in the NAV formula include securities and liquid cash with the fund scheme. Securities include all types of investments made by the fund scheme like equity instruments, bonds, debentures, commercial papers, and other money market instruments. The NAV is calculated every day after market closing.

Why is it important?

For an investor, the timing of the purchase is essential in the NAV of the units purchased. There is a 3 PM cut-off timing for all subscriptions and redemptions of mutual funds. If you make the payment and the bank receives it before 3 PM, you will receive units with the same day’s NAV. However, if the bank gets the fund after the 3 PM cut-off, your allotment will have the next day’s NAV – even if you paid to the AMC before 3 PM.

NAV is important to track the regular performance of the scheme. A newer mutual fund scheme would have a lower NAV, but the procedure is recommended if the NAV is improving fast. However, for the system’s long-term performance, the historical return is a better criterion. In other words, NAV cannot be the only parameter for selecting mutual funds.


With Tata Capital Moneyfy App, you can regularly track your SIP’s NAV changes and manage your investments better. Similarly, if you plan to invest in a new SIP, you will find the necessary information and analysis on hundreds of mutual funds in the Tata Capital Moneyfy App.