What is NAV in Mutual Funds? Meaning, Calculation & Cut-Off Timings

Mutual funds are market-linked instruments. Their value changes as the market moves. But how do investors know what their mutual fund units are worth? Net Asset Value (NAV) gives you that figure. In this article, we explain NAV meaning, how to calculate NAV, the applicable cut-off timings and why it matters when investing in mutual funds.

What is Net Asset Value (NAV)?

An investor who invests in a mutual fund gets a certain number of units of the fund in return. The value of one such unit is called the Net Asset Value. NAV shows the value of one unit of the scheme on a particular day. The figure changes as the value of the investments held by the fund moves.

How NAV Works in Mutual Funds?

Let us first understand how a mutual fund works. The fund manager first pools money from multiple investors. The money collected from investors is then invested in different securities. These securities are market-linked, and hence their values can fluctuate. When the securities perform well, their values increase. This increases the mutual fund's NAV, and vice versa.

Beyond this, the fund's assets and liabilities also impact its NAV. Other than securities, assets can also include cash held by the fund, dividends or interest due to the scheme, and other amounts receivable. Liabilities can include expenses payable, management fees and other amounts the fund needs to pay.

For investors, NAV does three things –

• It determines the overall value of their holdings. The number of units held multiplied by NAV gives them this value.

• When they want to invest, it tells them the number of units that can be bought.

• When they want to sell their units, it tells them how much they can receive from the sale.

What is the NAV Formula, and How do you Calculate It?

Calculating NAV is fairly straightforward. You take the total value of the fund's assets and subtract what the fund owes. Then divide the amount by the total number of units held by investors.

NAV Formula:

NAV = (Total Assets – Total Liabilities) ÷ Total Number of Outstanding Units

Here, total assets include the investments and other amounts the fund is entitled to receive. Liabilities cover expenses and other amounts the fund has to pay. The final figure gives the value of one unit of the mutual fund.

Real-World Example of NAV Calculation

Let us first work through a simple hypothetical example. Say the fund's assets add up to ₹50 crore. Its liabilities come to ₹2 crore. The fund has 4.8 crore units in circulation.

NAV = (₹50,00,00,000 – ₹2,00,00,000) ÷ 4,80,00,000 = ₹10

This gives us a NAV of ₹10 for each unit.

Now, let’s look at a real-world example using the Direct Plan – Growth option of the Kotak Multi Asset Allocation Fund:

Fund's NAV on 06 October 2026 = ₹16.31

Assume that an investor holds 1,000 units of the fund.

So, the total value of the investment on 06 October 2026 is approximately ₹16,310. NAV changes every business day. It also differs across the plans and options of a scheme. So check the latest NAV on the fund house's website before making any calculation of your own.

NAV Cut-Off Timings & Applicable NAV Rules

The cut-off time is the deadline for submitting a mutual fund transaction to get the applicable NAV. The Securities and Exchange Board of India (SEBI) sets these timings.

If you submit a request after the cut-off time, you will get the NAV applicable to the next eligible business day. For subscriptions, the NAV also depends on when the money becomes available for use by the scheme. So, even if you submit your application before the cut-off, you may not get that day's NAV if the payment is received later.

Why NAV is Different from a Stock's Market Price

NAV and stock prices may both tell you what an investment is worth. However, they work quite differently. A few key differences are as follows.

Factors that Affect the NAV of a Mutual Fund

There are quite a few things that can have a bearing on a mutual fund's NAV. For an equity fund, the performance of the stocks in its portfolio will usually be one of the main ones. A strong run in the stocks held by the fund can lift its NAV, while a fall in their prices can pull it down.

Debt funds have another factor to consider. Interest rate movements can affect bond prices. This consequently affects the NAV of a debt fund.

Besides this, the fund manager may increase or decrease exposure to certain sectors. This changes the value of the overall portfolio. Hence, the NAV changes, too. An increase in expenses reduces the assets of the scheme. On the other hand, income received through dividends or interest adds to the fund's assets. These factors also affect the fund's NAV.

Role of NAV in the Performance of a Fund

The NAV figure on its own does not tell you whether a mutual fund has done well. You need to see where it started and how it has moved since then.

Take two funds with NAVs of ₹20 and ₹100. The second fund is not automatically the better performer just because its NAV is higher. If the first fund's NAV rises from ₹20 to ₹25, that is a 25% gain. A rise from ₹100 to ₹110, meanwhile, works out to 10%.

This is why the change in NAV over a period is more useful than looking at the current NAV. When assessing a fund, investors can also compare its returns with the benchmark and similar funds. Risk, expenses and the fund's investment objective are worth looking at alongside the returns.

Common Misconceptions About NAV

NAV may be misread, especially when you are comparing different mutual fund schemes. A few common assumptions as follows can lead investors to the wrong conclusion.

• A lower NAV means the fund is cheaper; a higher NAV means the fund is expensive

This is not always true. The NAV simply tells you the value of one unit.

• A fund with a higher NAV is a better fund

A higher NAV is not a sign of better performance. Look at the fund's returns over time instead.

• NAV and returns are the same thing

They are not the same thing. NAV tells you what a unit is worth. Returns show how the value of your investment has changed over a period.

• NAV changes throughout the day like a stock price

No. The official NAV of most mutual funds is generally calculated once each business day, even though the securities held by the fund may be moving throughout the trading session.

How to Use NAV When Making Investment Decisions

NAV can tell you a few useful things about your mutual fund investment. You can use it for the following:

• To know the value of your holdings. Multiply your units by the latest applicable NAV. This tells you what your investment is worth.

• To track how your investment has changed. Compare the fund's NAV when you invested with the current NAV.

• To work out units and redemption value. NAV can be used to calculate the number of units of a fund you can buy with a certain amount. You can also calculate the value you may receive on redemption.

Bottom Line: What is NAV and Why it Matters for Investors

NAV is a number you will regularly see when dealing with mutual funds. So, when you look at what is the meaning of NAV, it simply tells you what one unit of the fund is worth. Investors also use it to track changes in the investment over a certain period.

However, NAV alone is not enough to judge a fund. It helps to check the fund's past returns and the risks it takes. The fund's performance against the benchmark can give you some additional context, as well.