Mutual Fund Basics • Investor Education

Understanding Mutual Fund NAVs: The Biggest Myth Debunked

By Ace All Solution Team

Net Asset Value or NAV is one of the most frequently used terms in the lexicon of mutual funds, yet it is also one of the most misunderstood. Many new investors equate NAV with the "Share Price" of a company, leading to incorrect investment decisions.

At Ace All Solution, we often hear clients say, "Sir, this fund has an NAV of ₹20, it is cheaper than the other fund with an NAV of ₹500." This is a dangerous misconception. Let’s clear the air.

What exactly is NAV?

Simply put, NAV is the market value of all the securities held by the mutual fund scheme divided by the total number of units issued to investors. It represents the "Book Value" of one unit of the fund.

Formula: NAV = (Total Assets - Total Liabilities) / Total Number of Units

The NAV changes every day based on the closing price of the stocks or bonds held in the portfolio.

The Big Myth: Low NAV vs High NAV

Myth: A fund with a lower NAV (e.g., ₹10) is "cheaper" and better than a fund with a higher NAV (e.g., ₹100).
Reality: The NAV is irrelevant to the returns. The returns depend entirely on the performance of the underlying portfolio (stocks).

Let's prove this with an example. Suppose you invest ₹1 Lakh in two different funds that both grow by 10% in one year.

Scenario	Fund A (Low NAV)	Fund B (High NAV)
NAV Price	₹ 10	₹ 100
Units Allotted	10,000 Units	1,000 Units
Investment Value	₹ 1,00,000	₹ 1,00,000
Growth (10%)	NAV becomes ₹ 11	NAV becomes ₹ 110
Final Value	10,000 x 11 = ₹ 1.1 Lakh	1,000 x 110 = ₹ 1.1 Lakh

Result: In both cases, your profit is exactly the same (₹10,000). The number of units you hold does not matter; the percentage growth matters.

When Does NAV Matter?

NAV is only relevant for calculating:

Entry/Exit: How many units you get when you buy or sell.
Taxation: Your capital gains are calculated as (Selling NAV - Buying NAV).

Conclusion

Do not judge a fund by its NAV. A high NAV simply means the fund has been around for a long time and has grown well. Instead of looking for "cheap" NAVs, look for fund performance, consistency, and fund manager quality.

Confused about which fund to pick? Contact Ace All Solution for research-backed investment advice.