Net Asset Value (NAV) of a mutual fund

From WebNotes, a public knowledge base. Last updated . Reading time ~14 min.

Net Asset Value (NAV) is the per-unit market value of a mutual fund scheme on a given valuation date, calculated by dividing the total market value of the scheme’s assets minus its liabilities by the total number of units outstanding. NAV is the single most important price reference for mutual fund transactions in India: all subscription, redemption, switch, and systematic investment plan (SIP) transactions are processed at the NAV applicable on the transaction date or the next business day, depending on the timing and the type of scheme.

In India, SEBI mandates that every mutual fund scheme disclose its NAV on each business day by 11 p.m. on the AMFI website and on the AMC’s own website. NAV is expressed in Indian rupees and rounded to four decimal places for equity and hybrid schemes, and to four decimal places for debt schemes (with additional precision mandated for some liquid and overnight fund categories).

How NAV is defined

The foundational formula for NAV is:

NAV = (Total Assets − Total Liabilities) ÷ Number of Units Outstanding

Where:

  • Total assets include the market value of all securities held (equities, bonds, money-market instruments, derivatives at mark-to-market value), accrued interest and dividends receivable, and other current assets.
  • Total liabilities include accrued expenses, management fees payable, custodian fees payable, registrar fees, audit fees, outstanding redemption payable, and any other current liabilities.
  • Units outstanding is the total number of units issued by the scheme less units redeemed up to the close of the prior business day.

NAV is not a measure of the quality of a fund’s portfolio or of future returns. Two funds with identical portfolios but different ages or dividend-payout histories may have very different NAVs, because a fund that declared dividends (now called IDCW, Income Distribution cum Capital Withdrawal) will have a lower NAV than a fund that has consistently grown its corpus through reinvestment.

Regulatory basis

The obligation to compute and disclose NAV is codified primarily in the SEBI (Mutual Funds) Regulations, 1996, specifically Regulation 47, which requires that the NAV of every scheme be calculated and published on each business day. SEBI has supplemented this with a series of master circulars and standalone circulars:

  • SEBI Master Circular for Mutual Funds (periodically updated, most recently consolidated in 2024) consolidates NAV disclosure requirements, cut-off timing, and valuation methodology references.
  • SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2021/024 (dated 5 March 2021) revised the uniform cut-off timing for all open-ended schemes (except liquid and overnight funds), fixing the equity and hybrid cut-off at 3:00 p.m. IST.
  • SEBI Circular on Valuation of Money Market and Debt Securities (SEBI/HO/IMD/DF4/CIR/P/2019/102, dated 24 September 2019) mandated a switch to full mark-to-market valuation for debt securities with residual maturity above 30 days, effective 1 April 2020.

The Association of Mutual Funds in India (AMFI) operates the central NAV repository at navindia.amfiindia.com, where historical and current NAVs for every scheme and plan are freely accessible.

Daily NAV computation process

Each business day, the following sequence is followed by fund accountants and AMC back-offices:

  1. Market close: The relevant stock exchanges (NSE, BSE) and fixed income markets (NDS-OM, CCIL) close, providing the final traded prices for all securities.
  2. Valuation of equity securities: Listed equities are valued at the closing price on the principal stock exchange (NSE or BSE, whichever has higher turnover for the security). If a stock has not traded on a given day, the valuation policy (usually last traded price or matrix price) prescribed in the scheme’s Statement of Additional Information (SAI) applies.
  3. Valuation of debt and money-market instruments: Debt securities with residual maturity above 30 days are valued at prices provided by AMFI-empanelled valuation agencies (CRISIL and ICRA operate the two approved agencies). Securities with residual maturity up to 30 days are amortised on a straight-line basis. For detailed methodology, see the article on NAV computation.
  4. Accrual of income and expenses: Interest income accrued during the day, dividends receivable, and fund expenses (management fees, trustee fees, custodian fees, etc.) are incorporated. Expenses are accrued daily based on the annualised Total Expense Ratio (TER) of the scheme.
  5. Finalisation by the fund accountant: The fund accountant, which in India is typically an AMC’s in-house back office or an outsourced service provider, consolidates assets, liabilities, and unit capital to arrive at the NAV.
  6. Submission to AMFI: NAV must be submitted and published on the AMFI website by 11 p.m. on the same business day (9 p.m. for overnight funds, and by next business day for fund of funds investing overseas).

NAV is the price at which a unit can be bought or redeemed in an open-ended fund. It differs from the market price concept relevant to listed securities in important ways:

  • Open-ended funds: There is no secondary market for the units. All purchases are made directly from the AMC (or its distributor/platform) at NAV, and all redemptions are at NAV. The AMC creates new units on subscription and cancels units on redemption. There is no bid-ask spread on the NAV itself (though exit loads may reduce the effective redemption price).
  • Close-ended funds: Units are issued at NAV during the New Fund Offer (NFO) window and thereafter traded on stock exchanges. The stock exchange market price may diverge from NAV, trading at a discount or premium depending on investor sentiment, liquidity, and time remaining to maturity.
  • Exchange-traded funds (ETFs): Units trade on the exchange at market-determined prices throughout the trading day. The NAV is computed and disclosed at end-of-day, and an indicative or iNAV (intraday NAV) is updated during trading hours. The market price of an ETF unit is usually within a narrow arbitrage band around iNAV.

Applicable NAV rules

The NAV at which a transaction is processed is called the applicable NAV. SEBI’s cut-off time rules determine which day’s NAV applies to a given transaction:

Scheme typeTransactionCut-off timeApplicable NAV
Equity / hybrid / solution-orientedPurchase or redemption3:00 p.m.Same-day NAV if received before cut-off; next business day NAV otherwise
Liquid fundPurchase1:30 p.m.T+1 NAV (next business day) for purchases; T NAV for redemptions received before 3 p.m.
Overnight fundPurchase1:30 p.m.T+1 NAV for purchases
Debt / income fundPurchase or redemption3:00 p.m.Same-day NAV if received before cut-off

For purchase transactions of Rs 2 lakh or more in any scheme (excluding liquid and overnight funds), SEBI requires that funds be realised in the AMC’s bank account before the cut-off time for the same-day NAV to apply. This prevents investors from exploiting NAV arbitrage between order time and funds realisation time.

Growth option vs IDCW option NAV

Each scheme typically offers two or more plans: a growth option and an IDCW (Income Distribution cum Capital Withdrawal) option. Each option maintains a separate NAV:

  • Growth option NAV: Grows over time as income and capital appreciation accumulate within the scheme without any distribution. Long-term investors generally hold the growth option.
  • IDCW option NAV: Falls by the quantum of any income distribution declared per unit (the distribution amount per unit is deducted from the NAV on the record date). For example, if the IDCW NAV is Rs 18.50 and a distribution of Rs 1.00 per unit is declared, the ex-IDCW NAV will be approximately Rs 17.50 on the record date.

Importantly, a fund with a lower NAV is not cheaper or better value than one with a higher NAV. A Rs 10 NAV fund and a Rs 250 NAV fund with identical portfolios will deliver identical returns to an investor, because the number of units allocated differs proportionally to the investment amount.

Direct plan vs regular plan NAV

Since 1 January 2013, SEBI has required every scheme to offer a direct plan (no distributor commission) alongside the regular plan. Each plan maintains a separate NAV:

  • Direct plan NAV is higher than the regular plan NAV for the same scheme, because direct plans have a lower TER (no trail commission paid to distributors). The NAV gap widens over time due to the compounding effect of the TER differential.
  • Regular plan NAV reflects the full TER inclusive of distributor trail commission.

The implications of switching between direct and regular plans are discussed in the article on direct-to-regular and reverse switch implications.

NAV is computed after deducting accrued daily expenses. The TER is expressed as an annual percentage of daily average net assets and is accrued on each valuation day as a fraction of the annual rate. SEBI has prescribed TER slabs linked to AUM size under Regulation 52 of the SEBI MF Regulations, limiting the maximum TER for equity funds to 2.25% per annum (for AUM up to Rs 500 crore) on a sliding scale down to 1.05% for AUM above Rs 50,000 crore. A full breakdown is available in the TER article.

If a day is a market holiday (as notified by NSE or BSE) or a bank holiday under the Negotiable Instruments Act, no NAV is computed. Transactions received on a non-business day are typically processed at the next business day’s NAV. Each AMC maintains a published holiday calendar, and subscription/redemption requests received on holidays are stamped with the next business day’s date for NAV purposes.

Common misconceptions

A low NAV is cheaper: This misconception leads investors to prefer newer NFOs with a Rs 10 face value NAV over established funds with higher NAVs. In reality, returns are determined by percentage change in NAV, not absolute level. Buying 1,000 units at Rs 10 or 100 units at Rs 100 from an identical portfolio yields the same absolute gain per rupee invested.

Dividend declaration reduces returns: IDCW distributions are paid from the scheme’s distributable surplus, which reduces NAV on the record date by exactly the distribution amount per unit. No economic value is created or destroyed by a distribution; only its form changes (from unrealised fund value to cash in the investor’s hand).

Higher NAV means the fund is expensive: NAV is not a valuation metric. It has no connection to whether the underlying portfolio is cheaply or expensively priced relative to earnings or book value.

References

  1. SEBI (Mutual Funds) Regulations, 1996, Regulation 47, NAV disclosure obligation.
  2. SEBI Master Circular for Mutual Funds (2024).
  3. SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2021/024 (5 March 2021), Uniform cut-off time.
  4. SEBI Circular SEBI/HO/IMD/DF4/CIR/P/2019/102 (24 September 2019), Valuation of debt securities.
  5. AMFI NAV data portal: navindia.amfiindia.com.
  6. SEBI Regulation 52, TER limits.

Reviewed and published by

WebNotes Editorial Team

The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

Last reviewed
Conflicts of interest
WebNotes is independent. No relationship with any broker, registrar or bank named in this article.