How Mutual Fund NAV Works: What a Higher or Lower NAV Really Means

A mutual fund's NAV is the per-unit value of the scheme after its assets and liabilities are accounted for. It helps determine units allotted or redeemed, but a lower NAV by itself does not make one scheme better value than another.

Direct answer

NAV is generally calculated as:

`(scheme assets − scheme liabilities) ÷ outstanding units`

For the same scheme and transaction cut-off, the NAV is used to determine the number of units allotted for an investment or redeemed for a withdrawal. Comparing the NAV of two different schemes alone is not meaningful: their portfolios, mandates, expenses, histories and unit counts can differ.

What goes into NAV

The AMFI NAV computation guidance explains that scheme assets can include the value of investments, receivables and accrued income, while liabilities can include accrued expenses and other obligations. The value changes as the underlying portfolio and income accruals change.

For an illustration only: if a scheme has net assets of ₹150 crore and 10 crore units outstanding, its NAV is ₹15 per unit. An investment of ₹6,000 at that NAV would be allocated 400 units, subject to the applicable NAV, cut-off time and scheme terms.

Why a low NAV is not automatically “cheap”

A ₹12 NAV and a ₹120 NAV do not tell you which scheme has better prospects, lower risk or a more suitable mandate. NAV is influenced by the starting unit value, distributions where applicable, portfolio movements and the number of outstanding units. It is not the share price of a company.

Evaluate a scheme in its category and against its stated investment objective. At minimum, read the Scheme Information Document, portfolio, expense disclosure, benchmark and risk disclosure before deciding whether it fits a goal and holding period.

Check the Riskometer alongside the NAV

SEBI requires mutual-fund schemes to display a Riskometer, intended to show the level of risk associated with a scheme. The Riskometer is evaluated periodically and should be read with the portfolio and scheme objective—not replaced by a quick NAV comparison.

A change in NAV can reflect normal market movement. It is not, by itself, a buy, sell or switch signal.

A practical reading checklist

1. Check that the NAV belongs to the correct scheme, plan and option.
2. Confirm the applicable NAV and transaction cut-off rules in the scheme documents or AMC platform.
3. Review the portfolio and investment objective to understand what drives the NAV.
4. Compare performance with the stated benchmark and relevant peer category over an appropriate period.
5. Read the current Riskometer and expense disclosures before taking any investment action.

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Sources

• AMFI: [Computation of NAV](https://portal.amfiindia.com/spages/6630.pdf)
• SEBI: [Master Circular for Mutual Funds, 20 March 2026](https://www.sebi.gov.in/legal/master-circulars/mar-2026/master-circular-for-mutual-funds_100491.html)
• SEBI Investor: [Understanding the Riskometer](https://investor.sebi.gov.in/riskometer.html)

Risk disclaimer: This is general investor education, not personalised investment advice, a recommendation or a solicitation. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Verify current scheme disclosures and consult a qualified professional before acting.