Investing Term

Net Asset Value (NAV)

Definition

The market value per share of a mutual fund scheme, calculated by dividing the total value of the scheme's assets (minus liabilities) by the number of outstanding shares/units.

Mathematical Formula

NAV = \frac{Total\ Assets - Liabilities}{Number\ of\ Outstanding\ Units}

Context & Practical Application

What is Net Asset Value (NAV)? (Simple Terms)

NAV is the price tag of a single share (or “unit”) of a mutual fund.

Think of a mutual fund like a large basket of fruits. If the total price of all fruits in the basket is ₹10,000, and the basket is divided into 100 slices, then each slice (unit) costs ₹100. That cost per slice is the NAV.

When you invest ₹10,000 in a fund with an NAV of ₹100, you buy exactly 100 units. If the values of the stocks inside the fund rise, the NAV goes up, and your units become worth more.

Understanding Net Asset Value (NAV)

The Net Asset Value (NAV) represents the net market value of a single unit of a mutual fund scheme.

The NAV is calculated at the close of every trading day based on the valuation of the securities held in the portfolio, minus any operating expenses and liabilities (calculated net of the fund’s expense ratio), divided by the total number of outstanding units.

Investors buy and sell mutual fund units at this closing NAV. Note that unlike stock prices, which change second-by-second during market hours, mutual fund NAVs are updated only once per day at the end of market hours.

Mathematical Valuation of Net Asset Value (NAV)

The Net Asset Value (NAV) of a mutual fund represents the per-unit book value of the scheme’s net assets at a specific valuation point $t$ .

The equation for NAV is:

NAV_t = \frac{\sum_{i=1}^{m} Q_i \cdot P_{i,t} + C_t - L_t - E_t}{U_t}

Where:

$Q_i$ is the quantity of security $i$ held by the fund.
$P_{i,t}$ is the closing market price of security $i$ at time $t$ .
$C_t$ represents cash and cash equivalents.
$L_t$ is the total accrued liabilities (e.g. unpaid redemptions, short-term debt).
$E_t$ is the daily accrued management expenses (calculated using the annual expense ratio).
$U_t$ is the total number of outstanding units.

The NAV forms the basis for all creation and redemption transactions. Unlike Exchange-Traded Funds (ETFs), which trade at market-determined prices that may deviate from their intraday NAV (premium/discount), mutual funds are bought and sold strictly at the NAV determined at the close of the trading day.

Referenced In Guides & Comparisons

Learn how Net Asset Value (NAV) is applied in real-world scenarios across our pathways:

Guide (curriculum-lesson)Lump Sum Investing Guide (curriculum-lesson)What is SIP?ComparisonSIP vs. Lump Sum: Which Mutual Fund Route is Better?