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Share price VS NAV

9 Mins 15 Dec 2022 0 COMMENT


Mutual funds offer multiple benefits, such as portfolio diversification, professional management and liquidity, for both large and small investors. Every fund pools money from retail investors and purchases a portfolio of securities traded and managed by fund managers. The investors are then issued units in exchange for their money. The price of a mutual fund unit is known as the Net Asset Value.

How is NAV Calculated?

The Securities and Exchange Board of India (SEBI) has made it mandatory for the fund houses to publish the NAV each business day.

However, it is difficult to compute the NAV of a mutual fund scheme due to the fluctuation in the prices of securities throughout the trading hours. Therefore, fund houses calculate NAV based on closing prices.

To calculate the NAV of a mutual fund, the following formula is used:

Value of Securities held + Value of Receivables - Value of Payables)/ Total Number of Units

The securities held by the fund managers and the receivables are considered the fund’s assets, while the expenses related to the scheme, asset management costs, and broker and distributor commissions are taken as the payables or liabilities.

Also, the receivables are the interest accrued to a scheme that is not yet received.

Once fund liabilities are subtracted from the fund assets, the result is divided by the number of units in the mutual fund to find the NAV.

Let’s consider an example to understand how NAV is calculated

Suppose a mutual fund has 100 units in total. The fund has invested Rs 60,000 in securities where the receivables amount to Rs 10,000. The payables or fund expenses amount to Rs 5,000. Thus,

NAV= (60,000+10,000-5,000)/100= Rs 650

Hence, the NAV of the mutual fund is Rs 650

NAV vs Share Price

NAV is the price investors must pay for a mutual fund unit. However, it shouldn’t be confused with the share price.

Stock prices tend to fluctuate according to the market forces. When the demand for a share increases, its price also increases and vice-versa.

On the other hand, NAV has nothing to do with demand and supply market forces. It is the book value of the mutual fund unit.

Also, a share’s book value and the market price at which it is bought and sold are not the same. Usually, share prices are determined by the company’s expected growth and other factors. Hence, the value of a stock is a prime factor in making investment decisions. This does not apply to a mutual fund’s NAV.


What is NAV in Mutual Fund | Net Asset Value Explained

Should You Consider NAV While Investing in Mutual Funds?

Novice investors usually have a misconception that mutual funds with lower NAV are better than the ones with higher NAV. However, this is not always the right strategy to invest in mutual funds.

In the case of mutual funds, NAV is largely irrelevant because the NAV doesn’t have any impact on the fund’s returns.

For example, Mr Kumar invests Rs 3000 in two mutual funds, A and B, with different NAVs.


Mutual Fund A

Mutual Fund B

Amount invested

Rs 3000

Rs 3000

NAV on purchase

Rs 70

Rs 100

Number of units



Assumed returns after one year



NAV after one year

Rs 77

Rs 110

Investment value after one year

Rs 3,300

Rs 3,300

*The above calculation is for illustration purposes only

Hence, as you can see in the above example, despite Fund A’s NAV being lower than Fund B’s NAV, the returns from both funds are the same after one year.

This shows that NAV has no relation to a fund’s returns. So, considering the fund’s past performance, investment strategy, portfolio quality, and AUM (Assets under Management) size is more important than the NAV.

Should You Invest in a Fund with a High NAV?

Since NAV is not affected by demand, it cannot be overvalued or undervalued. While share prices move up and down according to the market demand, NAV is affected only by AUM (Assets under Management) size.

Hence, NAV has no relevance to the performance of a fund. So, if the other factors, such as past performance, portfolio quality and management, are good, you should consider investing in the fund irrespective of a high NAV.

To Sum It Up

Mutual funds are becoming a popular investment tool among Indians in recent years. However, despite their popularity, many investors don’t know what NAV is in mutual funds. Though NAV is not an important factor to consider while choosing a fund, NAV movements can help you analyse the fund’s performance. Thus, knowing how the NAV of a mutual fund is calculated is crucial before picking a mutual fund scheme.

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