NAV (Net Asset Value) and how it's calculated

NAV (Net Asset Value) and how it's calculated

The performance of a mutual fund scheme is measured by changes in the Net Asset Value (NAV). Let us begin with understanding what net asset value is. NAV in Mutual Funds can be explained as the market value of securities held by the scheme, adjusted for liabilities. The total expense ratio (TER) is apportioned to the NAV of the fund on a daily basis to give a realistic picture. Each mutual fund does the net asset value calculation or NAV calculation at the end of each working day.

Remember, it is not just every scheme but each plan and each option have a separate NAV. For example, a mutual fund scheme will have different NAVs for regular plans and a different NAV for Direct Plans. They also have different NAVs for growth option and for ICDW option. The net asset value of mutual fund scheme is an indication of the market value per unit and is calculated after deducting the liabilities from total asset value divided. To get NAV per unit, this figure is divided by the number of units outstanding. The calculation of the net asset value (NAV) of mutual funds can be derived from our explanation given previously.

Net Value of an Asset = (Total Asset – Total Liabilities) / Total Outstanding units of the fund

Having understood the net asset value formula, the next step is to interpret the changes in the net asset value. Let us assume you invested in the NFO (new fund offering) of a mutual fund scheme at NAV of Rs 10. After 3 months, the NAV may have gone up to Rs 11.22. In that case, the mutual fund scheme has generated returns of 12.2% = ((11.22-10)/10) X 100.

To understand how to calculate Net Asset Value of any asset, focus on the word “Net”. That means you net the market value of the assets by the outstanding liabilities including the proportionate share of total expense ratio (TER). The net figure arrived at is what is left of the value of the portfolio after the liabilities and other expenses are taken care of. When an AMC runs a mutual fund, it has several costs like administration charges, fund management costs, custody charges, registrar fees, distribution costs, marketing costs etc. All these costs are proportionately assigned to the fund, and the resultant figure is the net asset value. It is normally expressed on a per unit basis.

Assets and liabilities of mutual funds in NAV calculation

The table below captures the key interpretation of assets and liabilities of a mutual fund for the purpose of NAV calculation. These NAVs are calculated and disclosed to AMFI by the Fund House by evening on every working day, as is mandatory as per SEBI regulations.


Asset Value Calculation for NAV

Liability calculation for NAV

The asset value calculation for mutual fund NAV includes the following:

  • Market value of all equity holdings in the fund portfolio

  • Market value of all bond holdings in the fund portfolio

  • Value of cash and cash equivalents in the portfolio for liquidity purposes

  • Value of any dividend on equity received on fund holdings

  • Value of any dividend on equity that is accrued, even if not received

  • Value of any interest on bonds/debt that is received on fund holdings

  • Value of any Interest on bonds/debt that is accrued, even if not received

  • Any other amount receivable as part of the fund operation


The liability value calculation for mutual fund NAV includes the following:

  • Any outstanding payments of any kind owed by the fund as part of operations.

  • Any money that is owed by the fund to the lenders.

  • Any fees or charges to associated units like registrars, custodians etc

  • Accrued expenses like utility bills, salary bills, office rentals etc

  • Payments of commission for trail and upfront sales due to distributors

  • Asset management fees payable to the AMC of the fund

  • Foreign payments including shares for non-residents and foreign liabilities

  • Any statutory dues payable to local, state or the central government



The liabilities on the right hand side of the table are adjusted against the asset values on the left hand side. That is called the net asset value method and most of the mutual funds use automated softwares to make such calculations on a daily basis, once the dynamic price feeds are put into the system. When the resultant net figure is divided by the number of outstanding units of the fund, what you get is the net asset value per unit, which is what gets reported daily.

NAV relevance for the Investors: Finally, how is the NAV or net asset value relevant to the mutual fund investor? You can understand the net asset value (NAV) of a mutual fund as the equivalent of the book value of a company. The NAV is relevant to the investor in 5 ways.

  • Net Asset Value (NAV) captures the wealth effect over a period of time. For instance, if the NAV of a fund has gone up from Rs 100 to Rs 118 in 1 year, it can be interpreted as an 18% return on the investment over one year.

  • Net Asset Value allows comparison. While you don’t compare directly on NAV, you can compare on returns generated on NAV. That helps in selection of funds within a category and also across categories

  • The net asset value is an important means of communication by the fund to its investors about how the fund is performing since the portfolio disclosures only happen on a monthly basis.

  • NAV can serve as an advance warning system for investors. For instance, if the rise in NAV or fall in NAV of an equity fund is out of sync with the index, there is something for investors to take a closer look.

  • NAV helps to calculate return per unit of risk, by using measures like the Sharpe and Treynor ratios.

The bottom line is that Net Asset Value (NAV) is calculated daily and it aids investors in assessing their fund’s performance.

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