What is NAV and Why Does It Matter in Mutual Funds?

By Admin

• 21 Jul, 2025

Introduction If you're new to mutual funds, one term you'll come across frequently is NAV. Understanding NAV—Net Asset Value—is essential for making informed investment decisions. It plays a critical role in evaluating the performance and value of a mutual fund scheme.

What is NAV? NAV stands for Net Asset Value. It represents the per-unit market value of a mutual fund scheme. NAV is calculated daily and reflects the total value of a fund's assets minus its liabilities, divided by the number of outstanding units.

Formula:
NAV = (Total Assets – Total Liabilities) / Total Number of Units

Why NAV Matters

1. Determines Unit Price: NAV tells you the price at which you buy or sell mutual fund units.

2. Tracks Fund Performance: Changes in NAV over time indicate whether the fund is growing or declining.

3. Transparency: NAV ensures transparency by showing the fund’s current valuation.

4. Comparing Funds: Helps investors compare different mutual fund schemes based on historical NAV trends.

Common Misconception A lower NAV doesn’t mean a cheaper or better fund. NAV only reflects the price per unit, not the quality or future potential of the fund. Always consider fund performance, risk profile, and portfolio quality.

NAV in SIP Investments In SIPs, the NAV on the day of each installment determines how many units you get. Over time, this averages out your cost per unit, known as rupee cost averaging.

How NAV Differs from Stock Price Unlike stocks whose prices are determined by market supply and demand throughout the day, mutual fund NAVs are calculated once at the end of each trading day based on the fund’s total asset value.

Final Thoughts NAV is a vital metric in mutual fund investing, but it should not be the sole factor in decision-making. Focus on your financial goals, fund objectives, past performance, and risk tolerance.

At ProShield Invest, we help you decode terms like NAV and guide you toward smarter, goal-based investment choices.

Invest smart. Understand better. Grow faster.