Investing Guide #37: What Is NAV in Mutual Funds & Why It Matters

 

Don’t Ignore This Number: Understanding NAV in Mutual Funds

Many investors blindly invest in SIPs and mutual funds without understanding a basic concept — NAV (Net Asset Value). It directly impacts how much of the fund you own.

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📊 What is NAV?

NAV = (Total Value of Fund’s Assets – Liabilities) ÷ Total Units Issued

It’s like the "per unit price" of a mutual fund.
Example: If NAV is ₹100 and you invest ₹1,000, you get 10 units.

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📊 Common Misconceptions

❌ “Low NAV = Cheap Fund” → Wrong.
✅ NAV doesn’t decide performance — the underlying assets and returns do.

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📊 Why NAV is Important

• Determines how many units you receive
• Affects your entry and exit value
• Helps compare performance with other funds

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📊 Does Higher NAV Mean a Better Fund?

No! A fund with ₹1 NAV can perform better than one with ₹500 NAV.

Focus on:

• Fund returns over 3+ years
• Expense ratio
• Fund manager’s reputation
• Benchmark comparison

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🧠 Pro Tip

NAV only matters at the point of transaction (buy/sell). For SIPs, averaging happens — so NAV impact is reduced.

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✅ Conclusion

Understand NAV like you understand stock price. It’s not the only thing that matters — but knowing it gives you smarter control over your investment.

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