NAV and units, explained with ₹100

Every fund has one number people stare at: the NAV. Most beginners misread it. They think a ₹10 NAV is cheap and a ₹500 NAV is costly. Neither is true. Ten minutes here will save you from a lifetime of bad comparisons.

What the NAV is

NAV stands for Net Asset Value. It is the price of one unit of the fund, and it is worked out once every working day after the market closes.

If a fund holds shares and bonds worth ₹500 crore, owes ₹2 crore in fees and expenses, and has 20 crore units out there, the NAV is ₹498 crore ÷ 20 crore = ₹24.90 per unit.

The NAV changes daily because the prices of the things inside the basket change daily. It is not set by demand for the fund itself, which is a key difference from a share price.

What ₹100 buys

Units do not have to be whole numbers. Funds allot units to three or four decimal places, so a small amount still buys an exact slice. Here is a ₹100 purchase into a fund whose NAV is ₹25.40 that day.

Stamp duty is a government levy on every purchase, and at 0.005% it is half a paisa on ₹100. It is too small to notice, but it is there, and it is why ₹100 does not buy exactly ₹100 of units.

If the NAV rises to ₹27.00 a year later, your 3.937 units are worth 3.937 × 27 = ₹106.30. If it falls to ₹23.00, they are worth ₹90.55. The unit count does not change; only the price per unit does.

High NAV is not expensive

This is the big one. Suppose two funds hold the exact same basket. Fund A has a NAV of ₹10 and Fund B has a NAV of ₹100. You put ₹1,000 into each.

• Fund A gives you 100 units.
• Fund B gives you 10 units.
• The basket rises 10%. Fund A's NAV becomes ₹11, Fund B's becomes ₹110.
• Your Fund A holding is 100 × 11 = ₹1,100. Your Fund B holding is 10 × 110 = ₹1,100.

Same money in, same money out. A NAV only tells you how far that particular fund has travelled since it started at ₹10. An older fund will naturally have a higher NAV. What matters is how the basket performs from today, not the number on the ticket.

Which day's NAV you get

You do not get a live price. You get the NAV of the day your order and your money are both received before the cut-off.

• Cut-off time: 3:00 pm for most funds, 1:30 pm for liquid and overnight funds.
• Order and money in before the cut-off on a working day: that day's NAV.
• After the cut-off, or on a holiday: the next working day's NAV.
• NAVs are published by 11 pm, so you will see your units a day or so after the order.

With a Daily SIP, the app places the order and collects the money through your mandate on each SIP day, so you simply get that day's NAV each time, whatever it happens to be.