What Is NAV in Mutual Funds? Valuation and Calculation Explained

Net Asset Value (NAV) represents the per-unit market value of a mutual fund scheme's underlying portfolio. It is the price at which investors purchase units from or redeem units back to the Asset Management Company (AMC).

Under SEBI regulations, every mutual fund must compute and publish its NAV at the end of each business day following the close of Indian stock exchanges.

Quick Answer

NAV is the net monetary value of a single unit of a mutual fund. It is calculated by totaling the market value of all securities held in the scheme, subtracting accrued liabilities and management fees, and dividing the remainder by the total number of outstanding units.

The SEBI NAV Calculation Formula

The regulatory formula mandated by SEBI for calculating NAV is:

$\text{NAV} = \frac{\text{Market Value of Investments} + \text{Receivables} + \text{Accrued Income} - (\text{Liabilities} + \text{Accrued Expenses})}{\text{Total Number of Outstanding Units}}$

(Source: SEBI Mutual Funds Regulations, 1996 - Schedule VIII on Portfolio Valuation).

Calculation Example:

- Total Portfolio Value of Stocks & Bonds: ₹1,000 Crore - Cash & Receivables: ₹20 Crore - Accrued Management Fees & Liabilities: ₹5 Crore - Net Portfolio Value: ₹1,015 Crore - Total Outstanding Units: 20 Crore units - Scheme NAV: ₹1,015 Crore ÷ 20 Crore = ₹50.75 per unit

Debunking the Low NAV Fallacy

A frequent retail misconception is that a fund with a NAV of ₹15 is "cheaper" or carries greater upside potential than an established fund with a NAV of ₹150.

This is mathematically inaccurate:

Consider two funds holding the identical portfolio of companies that appreciate by 10% over the next year:
- Fund A (NAV ₹20): A ₹1,00,000 investment buys 5,000 units. A 10% portfolio gain lifts the NAV to ₹22. Final corpus = 5,000 × ₹22 = ₹1,10,000.
- Fund B (NAV ₹200): A ₹1,00,000 investment buys 500 units. A 10% portfolio gain lifts the NAV to ₹220. Final corpus = 500 × ₹220 = ₹1,10,000.

Both investments yield the exact same financial return. A higher NAV merely reflects an older scheme that has accumulated compounded gains over a longer tenure.

SEBI Cut-Off Timings for Same-Day NAV

To receive the closing NAV of a business day, investor funds must reach the mutual fund account within statutory cut-off windows:
- Liquid and Overnight Funds: Cut-off time is 1:30 PM (funds must be realized by the AMC).
- Equity, Debt, and Hybrid Schemes: Cut-off time is 3:00 PM (subject to realization of funds).

(Source: SEBI Circular on Uniform Cut-off Timings for Mutual Fund Schemes).