NAV

NAV stands for Net Asset Value and represents the price at which investors transact in a mutual fund scheme. It is calculated at the end of each business day after accounting for all assets, liabilities, income, and expenses. For equity schemes, the NAV fluctuates every day because the underlying stock prices change continuously during market hours.

The formula for NAV is straightforward: total market value of all securities held by the scheme, plus accrued income, minus liabilities and expenses, divided by the total number of outstanding units. SEBI requires all open-ended schemes to publish NAV on every business day, and liquid and overnight funds must do so even on non-business days.

A common misconception among new investors is that a lower NAV means the fund is cheaper or better value for money, similar to a lower-priced stock. This is incorrect. A fund with NAV of Rs 10 and a fund with NAV of Rs 500 can deliver identical returns if their portfolio compositions are similar. NAV merely reflects the historical journey of unit value since inception; it does not indicate future performance or intrinsic value.

For direct plans, the NAV is slightly higher than the regular plan of the same scheme because direct plans do not pay distributor commissions. This difference compounds significantly over long investment horizons. For example, a 0.5% difference in expense ratio can result in a 10-12% difference in corpus over 20 years, which is reflected in the diverging NAVs of direct versus regular plans.

When an investor places a purchase or redemption order for an equity fund before 3 PM on a business day, the applicable NAV is the same day's NAV. Orders placed after 3 PM receive the next business day's NAV. For liquid funds, the cut-off time is 1:30 PM. These cut-off time rules, prescribed by SEBI, ensure fair treatment of all investors and prevent time-zone arbitrage.