How is NAV Calculated?

What Is NAV?

 The NAV informs the market on the value of one unit of the scheme on a given date. In case of a scheme where the net assets amount to ₹500 crores while the number of units is 25 crore units, then each unit has a value of ₹20. This means that in case one invests ₹10,000 in such a fund, he/she will get 500 units.

NAV vs Share price: The stock price fluctuates every second throughout the trading period depending on real demand and supply. The NAV works differently because it is determined at the end of the market trading period at the close price of the fund's portfolio.

The NAV Formula

NAV = (Total Assets − Total Liabilities) ÷ Total Outstanding Units

• Total Assets – market value of all securities the fund holds, plus cash, accrued income, and receivables
• Total Liabilities – fees, operating costs, and any money the fund owes
• Outstanding Units – total units held by all investors in the scheme

An investor putting in ₹8,400 that day receives 1,000 units. This same formula works in a spreadsheet: place total assets, liabilities, and units in three cells and use =(A1-B1)/C1.

Components That Go Into NAV

How Expense Ratio Affects NAV

The expense ratio is the annual cost a fund charges for managing your money, deducted from the fund's assets before NAV is declared. It covers management fees, operating costs, transfer agent costs, custodian and audit charges, and distribution expenses.
The deduction is spread daily, not taken as a one-time cut, so the NAV you see each day already reflects that day's slice removed. A fund charging 1.5% versus one charging 0.5% loses an extra 1% of value every year, which compounds into a meaningful gap over a decade — this is also the main reason direct plans show a higher NAV than regular plans of the same scheme, since direct plans skip the distributor commission.
 

What Moves NAV Day to Day

• Market movements in the shares and bonds the fund holds
• Interest rate changes, which especially affect debt fund holdings
• Dividends and interest income received, or payouts declared to investors
• The daily expense ratio deduction
• Large investor inflows and outflows
• Currency movements, for funds holding overseas assets
   

When NAV Is Calculated and Cut-off Rules

NAV is calculated once each business day after markets close, based on closing prices, and declared the same evening. The NAV you receive depends on when your request reaches the fund and when your money is realised.

Under SEBI's realisation-based rule, NAV applicability depends primarily on when funds are realised, so even a request placed before the cut-off can get the next day's NAV if the credit is delayed. Investing well ahead of the deadline on a volatile day is the safer approach.

How to Check a Fund's NAV

• AMFI website – lists the daily NAV of every scheme in India, updated each evening
• AMC website – every fund house publishes its own schemes' NAV, usually alongside the fact sheet
• Investment platforms – apps like 5paisa show live NAV plus your holding value together

What a High or Low NAV Actually Means

A high or low NAV on its own says nothing about whether a fund is good value. Picture two funds — Fund A at ₹10 and Fund B at ₹150. If both rise 10% over a year, both deliver the same 10% return.

A low NAV usually just means the scheme launched more recently, often at ₹10. A high NAV often signals a longer track record whose value has compounded over years. What actually matters is long-term performance, consistency across market cycles, expense ratio, and how well the fund's objective fits your goal.

Common myths:

NAV in SIP Investments

Each SIP instalment buys units at that day's applicable NAV, so a ₹5,000 monthly SIP buys 100 units when NAV is ₹50, but 125 units if NAV drops to ₹40 that month. This is rupee cost averaging,  buying more units when prices are low and fewer when high, smoothing your average purchase cost over time.

Types of Mutual Fund NAV

• Open-ended funds – NAV declared every business day; you buy or sell at that price
• Closed-ended funds – fixed units; NAV is still calculated, but units trade on the exchange where the traded price can differ from NAV
• ETFs – NAV is set at end of day, yet units trade live on the exchange through the session, so market price hovers around the NAV

Conclusion

Calculating a mutual fund's NAV comes down to one formula: total assets minus liabilities, divided by outstanding units. It's a daily valuation figure, not a signal of whether a fund is cheap, costly, or better than another. What drives your returns is how the NAV grows over time, along with the expense ratio and the fund's consistency.