Two funds sit side by side on a screen. One has a NAV of ₹847. The other, ₹12.30.
The overwhelming instinct is that the second is cheaper — that ₹10,000 buys “more” of it. That instinct is wrong, it is the most common misconception in retail investing, and fund houses have quietly profited from it for decades.
What NAV actually is
Net Asset Value = (what the scheme owns − what it owes) ÷ units outstanding.
It is a division, not a price. Nobody bids it up. There is no supply and demand for a NAV, because an open-ended scheme creates units on demand — if a thousand people invest today, a thousand people’s worth of new units appear, and the NAV does not move because of it.
It is struck once each business day, after markets close and the day’s holdings are valued. Everyone transacting that day gets the same figure.
Why a low NAV is not cheap
Here is the arithmetic, and it settles the question completely.
Invest ₹1,00,000 in each fund:
- At ₹847, you get about 118 units.
- At ₹12.30, you get about 8,130 units.
Now suppose both funds’ underlying holdings rise 10%. The first NAV becomes ₹931.70; the second becomes ₹13.53. Your holdings are worth ₹1,10,000 in each case.
Identical. The unit count was never the point — units are just how the pie is sliced. A 10% rise is 10% whatever the slice size.
All a NAV level tells you is how long the scheme has existed and how much it has grown. A high NAV is a fund with a long, successful history. That is closer to a recommendation than a warning.
The NFO trap this creates
This misconception has a commercial use. A new fund offer is sold at a flat ₹10 per unit, and it is routinely marketed as an opportunity to “get in at ₹10”.
There is no discount. ₹10 is simply where the arithmetic starts when the scheme has no history. What you are actually buying is a fund with no track record — no returns to examine, no drawdown history, no evidence of how it behaves in a bad year. That is strictly less information than an existing fund offers, and you are paying the same expense ratio for it.
Which day’s NAV you get
You do not get today’s NAV by deciding today. Two conditions must both be met:
- Your application reaches the AMC/RTA before the cut-off (commonly 3 p.m. for most schemes; 1:30 p.m. for liquid and overnight).
- The funds are actually realised in the scheme’s account.
The second catches people out. A transfer initiated at 2:55 p.m. that credits the next morning gets the next day’s NAV. In a volatile week that is a real difference, and it is the reason SIP dates should be set with a small buffer after your salary lands.
Pitfalls to avoid
- Never compare two funds’ NAV levels. They are not comparable quantities. Compare returns, cost and risk.
- Do not wait for a NAV to “come down”. It is not a share price finding support; there is nothing to time about the level itself.
- Do not read a big NAV drop as a crash without checking IDCW. An IDCW payout mechanically cuts the NAV by the amount distributed. The step down in the chart is a payout, not a loss.
- Do not assume a “₹10 NAV” fund has more room to grow. Growth comes from the holdings, and the holdings do not know what the NAV is.
Key takeaway
NAV is arithmetic — assets minus liabilities, divided by units — struck once a day, and its level carries no information about value. Your return is the percentage change in NAV over your holding period, and only that. Anyone selling you a fund on the grounds that its NAV is low is either confused or counting on you being so.
Terms used here
More in Module 1 — The absolute basics
What a mutual fund actually is (and why it is not a piggy bank)
Who holds your money, who merely manages it, and why that separation is the whole safety architecture — plus what a NAV is, and what it is not.
Mutual funds vs fixed deposits: which risk are you willing to see?
An FD hides its risk in purchasing power; a fund puts its risk on a screen daily. Where each genuinely wins, and why most households need both.
How do mutual funds actually make money?
The three doors return arrives through — appreciation, income, realised gains — and why all of them land in the NAV, net of costs you never see billed.
Decoding the alphabet soup: AMC, trustee, custodian and registrar
The company whose name is on the fund does not hold your money. Who does, why the structure is fragmented on purpose, and what an AMC failure would actually mean.
Active vs passive: can a human beat the market?
The accounting identity that starts the argument, what SPIVA India shows about large caps, why persistence is the real problem — and where active still earns its fee.
The magic of compounding: why starting early beats starting big
Most of the wealth arrives in the final stretch, from money contributed decades earlier. The worked example where five times the contribution still finishes behind.
Direct vs Regular plans: how a commission you never see costs you lakhs
The same scheme, the same portfolio, two different NAVs — and a trail commission deducted before the NAV is struck. What the gap compounds to over twenty years.
Can you lose money in mutual funds? Understanding market risk
Yes — but temporary, permanent and self-inflicted losses are three different things, and the largest source of realised loss is behavioural rather than market.
The mandatory checklist: what KYC is and how to complete it online
KYC is centralised, one-time and free — but Validated, Registered and On Hold mean very different things. Check which you are before you plan an investment.