Key takeaways
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NAV = total fund assets ÷ total units — calculated every business day✓
A high NAV simply means the fund has been running longer and growing✓
Two funds with identical portfolios give identical returns regardless of NAV✓
What matters is the percentage return — not the NAV number itself✓
NAV cannot be 'overvalued' the way a stock can be🧑💻
VikramAge 28·First-time investor, Pune
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Fund A has NAV of ₹12. Fund B has NAV of ₹380. I'll pick Fund A — it's much cheaper and has more room to grow.
Vikram is about to make one of the most common mistakes in mutual fund investing. His reasoning is understandable — but completely wrong.
What NAV actually is
NAV stands for Net Asset Value. Every business day, the fund calculates:
NAV = (Total value of all stocks owned − liabilities) ÷ Total units outstanding
If a fund owns stocks worth ₹500 crore and has 5 crore units issued, the NAV = ₹100.
As the stocks go up, NAV goes up. As stocks fall, NAV falls. It is updated at the end of every trading day.
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The twins experiment
Two funds start on the same day, January 2010, with NAV ₹10 each. Both hold identical portfolios. Both grow at exactly 12% per year.
Fund A (started Jan 2010): NAV in Jan 2025 = ₹10 × (1.12)^15 = ₹54.7
Fund B (started Jan 2020): NAV in Jan 2025 = ₹10 × (1.12)^5 = ₹17.6
Fund A's NAV is 3× higher. Not because it's better — but because it's older.
Same portfolio, different NAV — same return for you
Invest ₹10,000 in each fund. Both return 15% over 1 year.
Fund A (NAV ₹12) — units: 833₹11499L
Fund B (NAV ₹380) — units: 26.3₹11493L
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The result: virtually identical
Fund A: 833 units × ₹13.8 (new NAV) = ₹11,499
Fund B: 26.3 units × ₹437 (new NAV) = ₹11,493
Difference: ₹6 — due to rounding. Economically: identical.
The NAV number is irrelevant. The percentage return is everything.
NAV vs Stock Price — why they're completely different
Stock price (CAN be overvalued)
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Reflects market's opinion of future earnings✓
Can trade at 100x earnings (expensive)✓
Or at 5x earnings (cheap)✓
Comparison to fundamentals tells you if it's overpricedNAV (CANNOT be overvalued)
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Pure mathematical calculation of fund's net worth✓
Always equals: assets minus liabilities ÷ units✓
High NAV = fund has grown over time✓
No such thing as a 'cheap' or 'expensive' NAVWhat to look at instead of NAV
⚠Educational content only. Numbers shown are illustrative — actual returns vary. This is not investment advice. Consult a SEBI-registered financial advisor before investing.
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