We had an amazing cricket tournament last week. People from all over the state had come together to participate in a three-day tournament, with over 22 matches. I also had the opportunity to pick up and drop off an iconic player, and while driving, I asked him about the mutual fund investments he had made. He said he invests only in NFOs because he can buy mutual fund units at ₹10 all the time.
He told me the face value of a new fund offer is ₹10, and he is getting the units allotted at ₹10, so the investments are earning him the maximum value for money. I was shocked. It took me a while to explain to him why the NAV does not really matter in MFs.
The fact is, the NAV price has no bearing on a mutual fund's value for money. If you are buying an equity share, the price is significant, but with a mutual fund, the NAV is only a reference. Let me explain why.
What is NAV?
Net asset value (NAV) is a measure of the final value of each unit of the mutual fund. If the NAV is ₹1,200, then a ₹60,000 contribution will fetch you 50 units (i.e., ₹60,000 divided by ₹1,200).
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Equity mutual funds, as the name suggests, are linked to the stock markets. The value of your investments will go up or down depending on the component stock’s price movements. To track a fund's performance, the NAV is useful, but for its valuation, it's not.
The number of units will remain at 50 unless you make another purchase or sale decision, whereas the NAV changes daily based on the closing price of each component stock.
As an investor, you don’t really need to stress about the exact NAV calculation. The important thing to remember is this:
Total Investment Value = NAV × Number of Units
So, if the mutual fund performs well and the stocks inside the fund go up in price, the NAV rises and your investment value increases. On the other hand, if the stocks fall, the NAV drops, and your investment value declines.
To explain why the NFO’s price at ₹10 is an illusion of inexpensiveness, let me compare it with an existing mutual fund.
One is HDFC BSE Sensex Index Fund: INF179K01WN9, currently has an NAV of ₹722.7568 (as of May 11, 2026).
For the other let us assume that a mutual fund, XYZ, is launching its NFO on the Sensex Index fund at ₹10.
From a price perspective, the HDFC Sensex fund at ₹722 looks more expensive than an NFO XYZ. But both of these funds track the same index, i.e., SENSEX, and their price movements will be an exact mirror of SENSEX's movements.
If SENSEX rises by 5 per cent, then the valuation of both the funds will rise by 5 per cent. If SENSEX falls by 8 per cent, both funds will fall by 8 per cent. (Note: This is assuming the tracking error and expense ratios are zero, for illustration purposes.)
If you invest ₹1,00,000, you are going to get ₹1,00,000/₹722 = 138.5041 units of the HDFC Sensex fund and ₹1,00,000/₹10 = 10,000 units of the XYZ fund. If the Sensex is now trading at 75,100, and if it goes up by 10 per cent over the next 6 months, i.e., to 82,610 (75,100 + 10 per cent), the NAV of the HDFC fund would rise to ₹794.2 (₹722 + 10 per cent), and the XYZ fund would rise to ₹11 (₹10 + 10 per cent).
This means that the revised fund value would be ₹794.2 × 138.5041 = ₹1,09,999.95, ~ ₹1,10,000, for the HDFC Fund, and ₹11 × 10,000 = ₹1,10,000 for the XYZ Fund. It's almost the same: your portfolio grew by 10 per cent, as the underlying index also grew by 10 per cent.
NAV in a mutual fund is not an indicator of value. It does not indicate whether the fund is expensive or cheap; it is just a reference to the amount you have invested.
So the next time you wish to invest in an NFO, do so only if you believe the fund offers an interesting investment objective or it invests in a specific theme, not just to get into a fund at ₹10 NAV.
The writer is a SEBI Registered Investment Adviser (INA000021757), SEBI Registered Research Analyst (INH000025045), and author of ‘How to join the top 1% options traders club’.
DISCLAIMER: Investments in the securities market are subject to market risks, including the potential loss of principal. Past performance does not guarantee future results. Information provided is for educational purposes only and should not be considered financial advice. Investors should read all related documents carefully and consult a certified advisor before investing. Registration granted by SEBI and Enlistment with RAASB/BSE and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors. The investor is requested to take into consideration all the risk factors before actually trading in stocks or derivatives.
The opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.