Written by : Knowledge Centre Team
2026-06-19
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7 minutes read
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The investment world is full of investment options with varying features. Two of these options stand out for their wide presence and acceptance in formal investment products:
- Fixed Return Investments which declare the rate of return at the time of investing
- Capital Gain Investments which do not promise a fixed return but offer market-linked growth
Obviously, as an investor, you will expect a higher return from capital investments than from fixed returns investment. The simple reason behind the difference in expected returns is the investment risk.
We can mix multiple fixed return and capital gain investments to create a portfolio, or we can invest in a portfolio of such investments. Mutual funds, Unit Linked Insurance Plans, Pension plans are such portfolios that pool money from multiple investors.
The challenge with portfolio investments is to track the returns for each investor separately. This is where the concept of NAV comes into the picture. But before we understand NAV, we need to know another detail – AUM.
AUM - Asset Under Management
If you have invested in mutual funds or ULIP, there are chances that you have heard the term AUM. Let us understand what does it mean.
AUM is the total value of the assets the fund has in its portfolio. This value keeps changing due to the following factors:
- Market movements, or changes in the asset valuation
- Investor action, i.e., new investment or withdrawal
- Fund expenses, i.e., charges deducted from the fund value
Simply put, it is the total market value of all the funds or assets that a mutual fund manages at a particular point in time. Since Mutual funds invest in market securities, the value of the AUM can change every day.
What is NAV?
You now know that AUM is the total value of the investment managed by the fund. But if you are thinking of investing in a fund, you should not go by the value of AUM alone. Here is when NAV comes to action.
NAV stands for Net Asset Value of the fund. AUM tells the cumulative value of all units, NAV helps you to know about the value of a single unit of the fund.
This is the price at which you buy and sell units of the fund you have invested in.
How often does NAV Changes?
Like AUM, Net Asset Value or NAV also changes daily. Mutual funds mainly invest in securities such as equity, debt, etc. These are all linked with the market. That is the value of these funds changes with the market performance.
In India, the stock-exchanges open from Monday to Friday, from 9:15 am to 3:30 pm to the public. NAV is determined, on the closing price, i.e., the price of a stock at 3:30 pm every day.
1. NAV Updates in MFs
According to the SEBI directions, Mutual Funds are required to update their NAV at the end of the trading day. The fund’s NAVs are mostly updated by 9 pm -10 pm by most of the mutual funds. The same is the case for ULIPs.
If you purchase the units before 3:00 pm (cut-off), you will be allotted based on the NAV value at the end of the day.
2. NAV Updates in ULIPs
ULIP NAVs are also updated daily. However, the cut-off time for the transactions is 4:15 PM for both investment and redemption transactions.
So, if your redemption or investment request is received before 4:15 PM, the transaction will happen on the same day NAV. The next day’s NAV applies for the transactions received after 4:15 PM.
Learn how to know if your ULIP fund is doing by considering NAV.
How is NAV Calculated?
A mutual fund is created by pooling the money of many investors. From the total value of the fund, units are created. Thus, the whole fund is divided into small parts known as ‘units’.
You are allotted these units based on the amount you have invested in the fund.
NAV is the value of the total assets held by a ULIP fund after reducing the short-term and long-term liabilities from it. The NAV of a fund is calculated by dividing the net assets of the fund by the number of units outstanding of the fund.
Here is the formula for calculating NAV
(Market Value of All the Investments + Current Assets – All Liabilities)
Number of Outstanding Units
Let’s understand this with an example.
Suppose the market value of the mutual fund, i.e., its AUM value is Rs 1 crore. The expenses and other liability amount to Rs 10 lakh. The number of units a fund has outstanding is 90,000.
Thus, the NAV per unit of this fund will be Rs 100. Thus, each unit has a value of 100. NAV can increase and decrease as per the market.
Any new investment coming in the fund or redemption from it on the same day will happen at this NAV. Thus, redemption and investment proceeds do not affect NAV change.
How NAV helps Track the Performance?
The NAV plays a major role in determining how the assets involved in a fund have performed over the years.
Unlike the shares of the company, NAV takes into account both liquid capital as well as fixed assets for its calculation. Thus, NAV helps you get the whole financial picture of the organization on which you can base your decision.
Also, NAV forms the basis of much further calculation that helps judge the fund’s performance. ROI, Compound Annual Growth Rate, etc are derived from the fund’s NAV.
Let us understand with a scenario how you can track NAV so that you have a better idea of an investment.
Let us understand with a scenario:
- Raj decides to invest a total of Rs 1 lakh in ULIP. Here are other details
- Fund Value: Rs 1 Crore | Charges: Rs 5000 | Net amount invested: Rs 95,000
- Face Value of the unit = 10. This gives you 95000/10 = 9500 units.
Now if the value of the fund increases the NAV will also increase and vice versa.
The higher the NPV gets after buying, the better the performance of your fund.
Continuing with the same example, Suppose the value of your fund increases to Rs 1.1 cr. Now with this appreciation, the NPV increases to Rs 11. Thus, the amount you invested is now more. This means that the fund is doing good.
Dividend vs Growth Funds’ NAV
Portfolio investments like mutual funds and even ULIPs offer two ways of generating returns:
- Dividend Pay Out – Cash payments to investors
- Through capital gain – Appreciating the value of Units
The funds or portfolios which pay the earnings to investors in cash (dividend), will experience a stable NAV. Meaning, the NAV on any day will not reflect the number of past dividends earned by the investors.
Must Read - Dividend Distribution Tax (DDT)
Thus, for a dividend fund NAV cannot be the standalone performance indicator. For example:
| Year | Market Index | Growth Fund NAV | Dividend Fund NAV | Dividend Per Unit |
|---|---|---|---|---|
| 0 | 100 | 10.00 | 10 | |
| 1 | 124 | 12.23 | 12.23 | 0.5 |
| 2 | 132 | 12.83 | 12.30 | 0.5 |
| 3 | 146 | 13.99 | 12.87 | 0.5 |
| 4 | 155 | 14.64 | 12.93 | 0.5 |
| 5 | 149 | 13.85 | 11.76 | 0.5 |
| 6 | 157 | 14.38 | 11.69 | 0.5 |
| 7 | 160 | 14.44 | 11.23 | 0.5 |
The table shows how the NAV is impacted by the dividend payments. While growth fund NAV keeps up with the market index movements dividend fund NAV remains pretty much stable.
Thus, while judging a dividend fund you should look for its dividend payment history along with the NAV.
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Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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