What is NAV in mutual funds

NAV, or Net Asset Value, is the per-unit value of a mutual fund. It represents the value of the fund's holdings, minus its liabilities, divided by the number of units outstanding. When you invest, the amount you put in buys units at the prevailing NAV, so NAV is simply the price of one unit of the fund.

Unlike a share price that moves continuously through the trading day, a fund's NAV is calculated once daily after markets close, based on the closing value of its holdings. This is why your purchase or redemption is processed at a NAV linked to a cut-off, rather than at a live, second-by-second price.

A common beginner mistake is treating a low NAV as a bargain and a high NAV as expensive. NAV just reflects the per-unit value at a point in time; it says nothing about whether the fund is good value. Two funds with identical holdings would simply have different NAVs based on when they launched, not different quality.

Your return depends on how much the NAV grows in percentage terms while you're invested, not on its starting level. A fund whose NAV rises from a high base by the same percentage as one rising from a low base delivers the same return. Focus on the fund's strategy, costs and fit with your goals, not on the headline NAV.

Because NAV is struck once a day, the time you place a transaction relative to the applicable cut-off determines which day's NAV applies to it. Knowing this matters when you're investing or redeeming around month-ends or specific dates, so your transaction is processed at the NAV you expect rather than the next day's.