Walk into any conversation about mutual funds and you'll hear something like: "I bought the NFO at ₹10 NAV — what a steal!" or "I'm avoiding that fund, its NAV is already ₹500 — too expensive."
Both statements are completely wrong. NAV does not tell you whether a fund is cheap or expensive. It is one of the most misunderstood numbers in personal finance — and that misunderstanding costs investors crores of rupees every year by steering them toward worse funds.
This guide explains what NAV actually is, how it is calculated, the famous low-NAV myth (and why it's wrong), how to compute returns from NAV, and the SEBI cut-off time rules that determine which day's NAV you get.
NAV (Net Asset Value) is the per-unit value of a mutual fund scheme. Every business day, the AMC computes it after market close and publishes it on their website and on AMFI by 11 PM.
NAV = (Total Market Value of Assets + Cash + Receivables − Liabilities − Expenses) ÷ Total Outstanding Units
For example: if a fund holds ₹100 crore worth of stocks, ₹2 crore cash, ₹1 crore receivables, has ₹50 lakh liabilities and ₹50 lakh accrued daily expenses, and 4 crore units are outstanding:
NAV = (100 + 2 + 1 − 0.5 − 0.5) ÷ 4 = 102 ÷ 4 = ₹25.50
When you buy units that day, each unit costs you ₹25.50 (subject to cut-off time). When you redeem, each unit pays out ₹25.50 (minus exit load if applicable).
This is the most damaging misconception in mutual fund investing. Many investors, especially new ones, believe that a fund with NAV ₹15 is "cheaper" than a fund with NAV ₹500. Distributors exploit this confusion to push New Fund Offers (NFOs) launched at ₹10 NAV.
It is wrong. Here's why.
Imagine two funds with identical portfolios and identical 12% annual return — but different NAVs:
| Detail | Fund A (Low NAV) | Fund B (High NAV) |
|---|---|---|
| Current NAV | ₹15 | ₹500 |
| Your investment | ₹10,000 | ₹10,000 |
| Units allotted | 666.67 | 20.00 |
| NAV after 1 year (+12%) | ₹16.80 | ₹560 |
| Your portfolio value | ₹11,200 | ₹11,200 |
| Return earned | ₹1,200 | ₹1,200 |
Identical return. The "low NAV" advantage is an illusion — you got more units because each unit was cheaper, but each unit also grew by a smaller absolute amount. The percentage growth (12%) is what matters, not the absolute NAV.
The NAV reflects only one thing: how long the fund has been around and how much it has grown since inception. A fund launched in 1995 at ₹10 NAV that compounded at 15% per year would have NAV ~₹1,800 today — not because it's "expensive" but because it has been performing for 30 years.
New Fund Offers are launched at ₹10 NAV. AMCs and distributors love NFOs because the "low" NAV creates buyer psychology — investors feel they're getting a deal. Investors should generally avoid NFOs in established categories because there's no track record, no proven fund manager skill at that strategy, and the existing 5-year-old fund with NAV ₹50 likely has demonstrated performance. NFOs make sense only when the strategy is genuinely new (a new asset class, a new geography) — not just a "₹10 starting price" rebrand of something that already exists.
If NAV doesn't tell you anything about cheap or expensive, what should you look at? Five things, in order:
NAV is not on this list. NAV is a record-keeping number that tells you how much one unit costs today, but says nothing about future returns.
Absolute Return % = ((Current NAV − Purchase NAV) ÷ Purchase NAV) × 100
Example: Bought at ₹50, current NAV ₹65. Return = ((65 − 50) ÷ 50) × 100 = 30%.
CAGR % = ((Current NAV ÷ Purchase NAV) ^ (1 / years) − 1) × 100
Example: Bought at ₹50 four years ago, current NAV ₹100. CAGR = ((100 ÷ 50) ^ (1/4) − 1) × 100 = (1.189 − 1) × 100 = 18.92%.
For SIP investments, every installment was bought at a different NAV. Simple CAGR doesn't work — you need XIRR (Extended Internal Rate of Return), which handles multiple cash flows at different dates. Tools that do this automatically: Value Research, Morningstar India, Zerodha Coin, Groww, Kuvera. Our XIRR Calculator also works.
This matters because mutual fund NAVs change every day. Whether you get today's or tomorrow's NAV depends on when the AMC receives your money (not just your application).
| Scheme Type | Cut-off Time | Condition for Same-Day NAV |
|---|---|---|
| Equity / Debt / Hybrid (Buy) | 3 PM | Money credited to AMC by cut-off |
| Equity / Debt / Hybrid (Redeem) | 3 PM | Request received before cut-off |
| Liquid Fund (Buy) | 1:30 PM | Money credited to AMC by cut-off |
| Liquid Fund (Redeem) | 3 PM | Request received before cut-off |
If you transact after the cut-off or on a non-business day (weekends, holidays), you get the next business day's NAV. The rules were tightened post-2021 — earlier, just submitting the application by 3 PM was enough, even if money came in later. Now actual money receipt by the AMC matters.
If your SIP debit date is the 5th of every month, the NAV applied depends on when the AMC actually receives the money — typically same-day if your bank processes the debit quickly, next business day if there's a delay. Over a long SIP, these single-day NAV differences average out and don't materially affect your returns.
The expense ratio is the annual fee deducted from your NAV. It's the single biggest hidden cost in mutual fund investing — and the reason direct plans matter so much.
Read: What Is Expense Ratio →📖 New to finance terms? Our glossary covers 150+ Indian finance terms — plain English, no jargon.
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