Net Asset Value Calculation
Net Asset Value calculation is the daily process of valuing a mutual fund scheme's assets, subtracting its liabilities and expenses, and dividing the result by the number of units outstanding to arrive at the per-unit NAV.
What Is Net Asset Value Calculation?
Net Asset Value (NAV) calculation is how a mutual fund works out the value of one unit of a scheme on a given business day. The NAV is the price at which you buy or redeem units of an open-ended scheme (before any exit load).
SEBI explains NAV in its investor FAQs as the net assets of the scheme (total assets minus total liabilities) divided by the total number of outstanding units on a particular date. Because the prices of the securities held change every day, the NAV is calculated and disclosed every business day.
Understanding how NAV is calculated helps you see why NAV moves, why direct and regular plans have different NAVs, and why a "low NAV" fund is not automatically cheaper. For the basic concept, see Net Asset Value (NAV).
How Does NAV Calculation Work?
The formula:
NAV per unit = (Market value of investments + Cash and bank balances + Accrued income + Other receivables − Liabilities − Accrued expenses) ÷ Number of units outstanding
Step by step:
- Value the investments. At the end of the business day, each security is valued as per SEBI's valuation norms and the AMC's valuation policy. Listed shares generally use closing market prices. Debt and money market instruments are valued using prescribed methods, often based on prices from independent valuation agencies.
- Add cash and receivables. Bank balances, money owed to the scheme for securities sold but not yet settled, and dividends or interest earned but not yet received (accrued income) are added.
- Subtract liabilities. Amounts payable for securities bought but not yet settled, redemption payouts due and other dues are deducted.
- Deduct accrued expenses. The scheme's daily share of its total expense ratio (TER) is charged. TER is an annual percentage, so roughly 1/365th is accrued each day.
- Divide by outstanding units. The resulting net assets are divided by the units in issue at the end of the day.
- Compute separately for each plan and option. Direct and regular plans, and growth and IDCW options, share the same portfolio but have different expenses or payouts, so each has its own NAV.
- Publish the NAV. NAVs are uploaded to the AMC's and AMFI's websites within SEBI's timelines.
| Scheme type | NAV disclosure deadline (as per SEBI's Master Circular, 20 March 2026) |
|---|---|
| Most schemes | 11 PM on the same business day (T day) |
| Schemes with exposure to exchange-traded commodity derivatives | 9 AM on T+1 day |
| Fund of Funds | 10 AM on T+1 day |
| Schemes (including index funds and ETFs) investing at least 80% in permissible overseas investments | 10 AM on T+1 day |
Practical Example
Illustrative figures only.
At the close of a business day, an equity scheme has:
| Item | Amount (₹ crore) |
|---|---|
| Market value of shares | 500.00 |
| Cash and bank balances | 10.00 |
| Accrued dividend and interest income | 2.00 |
| Payable for shares purchased (liability) | 4.00 |
| Accrued expenses payable | 1.00 |
| Units outstanding | 20 crore units |
Step 1: Total assets = 500 + 10 + 2 = ₹512 crore Step 2: Total liabilities = 4 + 1 = ₹5 crore Step 3: Net assets = 512 − 5 = ₹507 crore Step 4: NAV per unit = ₹507 crore ÷ 20 crore units = ₹25.35
Daily expense accrual: If this plan's TER is 1.50% a year, the expense charged for the day is about ₹507 crore × 1.50% ÷ 365 = ₹7.605 crore ÷ 365 ≈ ₹2.08 lakh. That cost is already reflected in the NAV you see; it is not billed to you separately.
Effect of a new investment: If an investor puts in ₹25.35 lakh at this NAV, they receive ₹25,35,000 ÷ ₹25.35 = 1,00,000 units. Net assets and units both rise proportionately, so the NAV stays ₹25.35.
Why Is It Important?
- It decides your transaction price. Units are bought and redeemed at the applicable NAV, determined by cut-off timings.
- It reflects all costs. Because expenses are deducted daily, the NAV shows returns after costs.
- It explains plan differences. A direct plan's NAV is usually higher than the regular plan's over time because of its lower expense ratio.
- It enables performance tracking. Returns are calculated from changes in NAV (adjusted for any IDCW).
- It ensures fairness. Daily valuation using standard rules means entering and exiting investors are treated equitably.
Key Features or Components
- Market value of investments: The largest component; changes with market prices.
- Accrued income: Interest and dividends earned but not yet received.
- Receivables and payables: Unsettled trades and other pending flows.
- Accrued expenses: Daily share of management fees and other permitted costs within the TER.
- Units outstanding: Changes with purchases and redemptions.
- Valuation policy: Each AMC's board-approved policy, within SEBI's principles, guides how illiquid or unlisted securities are valued.
- Separate NAVs per plan and option: Same portfolio, different NAVs.
Benefits and Limitations
Benefits
- Transparent, daily, rule-based valuation.
- Costs are built in, so the NAV return is the net return to investors.
- Same price for all investors transacting in the same plan on the same day.
Limitations
- Forward pricing: You do not know the exact NAV when you place a transaction before the cut-off; it is calculated after markets close.
- Valuation of illiquid securities involves judgement, especially in debt instruments that rarely trade.
- NAV level says nothing about value. A ₹10 NAV fund is not "cheaper" than a ₹500 NAV fund.
Comparison With Related Concepts
| Concept | Meaning | Key difference | Practical implication |
|---|---|---|---|
| NAV calculation | Daily computation of per-unit value | The process behind the number | Explains why NAV moves |
| Applicable NAV | The NAV used for your transaction | Depends on cut-off time and fund realisation | Decides your allotment price |
| Assets Under Management (AUM) | Total net assets of the scheme | NAV × units outstanding (summed across plans) | Indicates fund size, not performance |
| Market price of ETF | Price on the stock exchange | Can trade at a premium or discount to NAV | Compare with indicative NAV before buying |
| Share price | Price of a company's stock | Set by demand and supply, not by net assets | NAV is not driven by buyer demand |
How Does It Apply to Mutual Fund Investors?
- Purchases and SIPs: Units allotted = amount invested ÷ applicable NAV (after any stamp duty, as applicable).
- Redemptions: Proceeds = units × applicable NAV, minus any Exit Load.
- Comparing plans: Higher NAV in a direct plan versus regular plan reflects lower costs over time; see Direct Plan vs Regular Plan.
- IDCW option: On an IDCW payout, the NAV falls by the distributed amount per unit.
- Checking NAV: NAVs of all schemes are available on AMFI's website and AMC websites daily.
Common Mistakes and Misconceptions
-
"A low-NAV fund is cheaper and will grow faster."
- Correct view: Returns depend on percentage changes in the portfolio's value, not the NAV level.
- Why it matters: Choosing funds or NFOs because of a ₹10 NAV is a common error.
-
"I pay the expense ratio separately."
- Correct view: Expenses are deducted daily within the NAV.
- Why it matters: The NAV return is already net of TER.
-
"Large inflows push the NAV up."
- Correct view: New money buys units at NAV; it does not raise the NAV.
- Why it matters: Popularity alone does not create returns.
-
"I can know the exact NAV when I invest at 2 PM."
- Correct view: NAV is calculated after the day's close; you get that day's NAV only if cut-off and fund realisation conditions are met.
- Why it matters: Mutual funds use forward pricing to keep transactions fair.
Important Terms to Know
- Net Asset Value (NAV): The per-unit value of a mutual fund scheme.
- Applicable NAV: The NAV at which your transaction is processed.
- Total Expense Ratio (TER): The annual cost deducted from scheme assets.
- Assets Under Management (AUM): Total value of assets managed by a scheme.
- Mutual Fund Cut-Off Timings: Deadlines that decide which day's NAV applies.
- Allotment of Units: Crediting of units based on applicable NAV.
Key Takeaways
- NAV = (assets − liabilities and expenses) ÷ units outstanding, calculated every business day.
- Expenses are deducted daily, so NAV-based returns are net of costs.
- Purchases and redemptions do not change the NAV; market movements, income and expenses do.
- Each plan and option has its own NAV, published within SEBI's daily timelines.
- The level of NAV does not indicate whether a fund is cheap or expensive.
Related Glossary Terms
- Expense Ratio
- Growth Option vs IDCW Option
- Open-Ended vs Close-Ended Funds
- Cut-Off Time and Applicable NAV
- Absolute Return
References
- SEBI: Master Circular for Mutual Funds (20 March 2026) (NAV disclosure timelines)
- SEBI: FAQs for Mutual Fund Investors (NAV definition, example and disclosure timelines)
- AMFI: Review of time limit for disclosure of NAV
Disclaimer
This content is for educational and informational purposes only and is not personalised investment, tax or legal advice. Figures are illustrative. Mutual fund investments are subject to market risks; read all scheme-related documents carefully before investing.
Next, see how timing affects the NAV you get in Mutual Fund Cut-Off Timings, part of the FynnChintan Finserv glossary.
Frequently Asked Questions
When is the NAV published?
As per SEBI's Master Circular for Mutual Funds, most schemes must update NAV by 11 PM on the same business day. Fund of funds and schemes with at least 80% in permissible overseas investments have until 10 AM the next business day, and schemes with commodity derivatives exposure until 9 AM the next business day.
Why does NAV change every day?
The securities in the portfolio are revalued at each day's closing prices, income accrues and expenses are deducted. Any rise or fall in the market value of holdings changes the net assets and therefore the NAV.
Does an IDCW payout reduce the NAV?
Yes. When IDCW is declared, the amount distributed per unit is paid out of the scheme's assets, so the NAV falls by that amount on the ex-date. Your total wealth does not increase because of the payout.
Why do direct and regular plans of the same fund have different NAVs?
Both invest in the same portfolio, but the regular plan has a higher expense ratio because it includes distribution costs. Since expenses are deducted daily, the regular plan's NAV grows slightly slower, and the gap widens over time.
Is NAV the same as the price of an ETF?
Not exactly. An ETF has a NAV calculated like any mutual fund, but on the exchange it trades at a market price that can be slightly above or below NAV depending on demand, supply and liquidity.
This explanation is for general education only and is not investment advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.