Archive · 2 Jun 2025
Understanding Mutual Funds: Why NAV Doesn't Determine Returns
NAV is like the price of one share of a mutual fund.
It changes every day, but it doesn't tell you if the fund is good or will make you money.
The real key to making money is the percentage increase of the fund, not the NAV.
When you choose a mutual fund, look at how well it has performed in the past, what it invests in, who's managing it, and if it fits your goals.
Using Systematic Investment Plans (SIPs) is like buying at different prices which lowers your risk.
NAV (Net Asset Value) is the per-unit price of a mutual fund, calculated by dividing total assets by outstanding units.
NAV changes daily based on the market value of the fund's underlying assets.
NAV does not indicate a fund's quality, growth potential, or expected returns.
Investment outcomes depend on a fund's percentage return, regardless of the starting NAV.
Investors should focus on fund performance, portfolio quality, fund manager track record, and investment strategy instead of NAV.
- Who
- Investors
- What
- NAV, and its effect on returns.
- When
- Daily
- Where
- N/A
- Why
- To understand how mutual fund returns are generated
Common Misconception
Reality of Investments
NAV's perceived importance
Common Misconception
A fund's NAV has no impact on returns.
Reality of Investments
Investors may believe that a lower NAV indicates a 'cheaper' fund with more growth potential.
- What is NAV?
- Per-unit price of a mutual fund
- NAV Calculation
- Total assets - total liabilities / Total outstanding units
- NAV changes when?
- Daily, based on underlying asset values
- What determines investment outcome?
- Percentage return, not NAV
- What to look for instead of NAV?
- Fund Performance, Portfolio Quality, Fund Manager Track Record, Investment Strategy