When you begin exploring mutual funds, one term appears everywhere—NAV, or Net Asset Value.
While it may sound technical, NAV is actually one of the simplest concepts in personal finance.
This article breaks it down using an easy real-life example so you understand exactly what NAV means and why it matters.
What is NAV in Mutual Funds?
It represents the per-unit value of a mutual fund scheme.
Whenever you invest or withdraw from a fund, your transaction happens at this NAV.
A Practical Story to Understand NAV
Imagine a young fund manager who approaches five families to manage their money.
Each family decides to invest a small amount to see how he performs.
Investments from the 5 families:
- Family 1 → ₹65,000
- Family 2 → ₹1,00,000
- Family 3 → ₹50,000
- Family 4 → ₹35,000
- Family 5 → ₹25,000
Total Fund Value = ₹2,75,000
To keep things simple, the fund manager assigns a notional unit value of ₹10 per unit.
Units allotted (Investment ÷ ₹10):
- Family 1 → 6,500 units
- Family 2 → 10,000 units
- Family 3 → 5,000 units
- Family 4 → 3,500 units
- Family 5 → 2,500 units
These units represent each family’s ownership in the fund.
How Investments Affect NAV
The fund manager now invests the entire ₹2,75,000 equally across 10 different stocks (₹27,500 each).
As stock prices move during the day, the value of each investment also changes.
Example:
- Stock 1 rises 3% → its value increases
- Stock 2 falls 0.85% → its value decreases
- And so on…
By the end of the day, the total portfolio value increases to:
👉 ₹2,77,844
This is a profit of ₹2,844, or 1.034% for the day.
How NAV Changes
Originally, the unit value was ₹10.
Since the fund grew by 1.034%, the unit value must also grow by 1.034%.
New NAV = ₹10 × 1.01034 = ₹10.1034
This new NAV ensures profits are distributed fairly among all unit holders.
Withdrawing Money at the New NAV
Suppose Family 4 now wants to withdraw their money.
They must redeem:
3,500 units × ₹10.1034= ₹35,361.90
This includes:
- Their original ₹35,000
- Plus their share of the profit
A New Investor Buys at the New NAV
If another family (Family 6) wants to invest ₹35,000:
Number of units = 35,000 ÷ 10.1034= 3464.18 units
Since the fund has grown, new investors buy units at the higher NAV.
Why Is It Called Net Asset Value?
Because expenses are deducted before the NAV is declared.
These include:
- Brokerage on stock buying
- Govt taxes
- Internet & electricity costs of fund operations
- Fund manager & staff salaries
- Other administrative expenses
NAV = Value after subtracting these expenses
That’s why it’s called Net Asset Value.
Important: NAV is NOT the same as cheap or expensive
A fund with NAV ₹10 is not cheaper than a fund with NAV ₹150.
NAV only tells you the per-unit value, not whether the fund is “low priced.”
What matters is:
- Portfolio quality
- Fund strategy
- Long-term performance
- Consistency of returns
Final Summary
Here is the NAV concept in one simple picture:
NAV = Total value of all stocks – Expenses
÷
Number of units**
NAV:
✔️ Changes daily
✔️ Reflects profit or loss
✔️ Determines buying & selling price
✔️ Ensures fairness among investors
Understanding NAV is the first foundational step in mutual fund investing.
In the next stage, you can explore fund fact sheets, benchmarks, categories, and how to analyse a fund.
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