Net Asset Value (NAV) - Explainer and Calculation

Net Asset Value (NAV) - Explainer and Calculation

Net Asset Value (NAV) of a Mutual Fund:

One of the most fundamental concepts to understand while investing in mutual funds is NAV which stands for Net Asset Value. This is the value assigned to every mutual fund unit that investors buy.
Before we break down the concept of Net Asset Value (NAV) let’s try to understand how mutual fund investing works.
As an investor, when you put your money in mutual funds, the fund manager then allocates that money to purchase a bunch of underlying securities that trade in the stock market. The fund manager pools all the money received from individual investors and invests it as a whole. But the return experienced by the investors would be uniform and an equitable distribution would be made in proportion to the money invested.

To ensure the same, a notional value is assigned to every individual mutual fund unit and then the number of units held by each investor is estimated. This notional value assigned to every unit is called the ‘Net Asset Value’. 

Once the money is invested in the stock market, the value of the stock can fluctuate and at the end of day this can either result in a profit or loss based on which the NAV is recalculated. This is a continuous process and based on market fluctuations, the Net Asset Value (NAV) can either increase or decrease.

Basic NAV Calculation for a Mutual Fund:

A mutual fund’s net asset value or NAV is one of the most important metrics. On an end of day basis, the mutual fund company carries out a set of calculations, including the following –

  1. The value of all the investments
  2. Expenses of running the mutual fund

Based on these parameters, the NAV of a fund is estimated daily. The formula to calculate the NAV is :

NAV = (Value of all the assets – the expenses)/number of mutual fund units

Daily Net Valuation of Assets:

Let’s look at a simplistic illustration of how the daily calculation of Net Asset Value happens. For any fund that has already accumulated some investment inflows will be managing a decent amount of money already. On Day 1, let’s call this Opening AUM (Assets Under Management).

At the end of the trading day on Day 1, the fund would have earned some income/loss on the basis of the price movement of underlying constituents associated with the fund. There can also be other contributing factors to this income/loss.

Also, the fund would have incurred some expenses such as the investment management fees, scheme expenses, investor education fees etc. This is represented in the form of expense ratio.

Based on this the Closing AUM as of Day 1 is calculated as [Opening AUM + Income/Loss - Total Expenses].  

Hence, the NAV for Day 2 will be calculated as [Closing AUM as of Day 1➗Total Number of Mutual Fund Units of all Unit holders]. 

This process will continue on a daily basis and the Closing AUM for Day 1 will become the Opening AUM for Day 2 and so on.

Role of NAV in the performance of the mutual fund:

The fund itself is composed of underlying securities in which it has invested in. Whenever someone invests in the fund, they are taking exposure to these underlying securities. The fund manager is responsible for allocating the money invested by retail investors to these securities. Now, the prices of these securities can go up or down based on the market behaviour. If the net value of all the securities linked to this fund goes up for the day then that means the fund has generated a profit for that day and if the net value of all the securities linked to this fund goes down for the day then that means the fund has generated a loss for that day.   

The market value of one unit of the fund can be called as the actual asset value. But there are also brokerage charges, and other statutory charges involved in managing the expenses of the fund. Hence, Net Asset Value can also be calculated as the (Actual asset value - Fund Management Expenses).

Hence, monitoring the Net Asset Value (NAV) of the fund over a period of time, we can determine the overall performance of the mutual fund. For example, In the case of Zerodha Fund House, the updated NAV is reported in the disclosures section.


Understanding the concept of Net Asset Value (NAV) is extremely important before investing in any mutual fund. When investors buy mutual fund units, they are buying each unit based on the Net Asset Value. Hence, it is important to understand the meaning of Net Asset Value since it represents the market value of all the securities held by the scheme.  

Mutual Fund investments are subject to market risks, read all scheme related documents carefully

Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.