"Iska NAV sirf ₹12 hai, wo wala ₹480 ka hai. Ye sasta pad raha hai na?" I have had this conversation more times than any other, with people who are otherwise sharp about money. And the reason it keeps happening is that the logic sounds right. Everywhere else in life, a lower price is cheaper. Here it isn't, and the misunderstanding costs people real money.
Let me do this with numbers, because explanations without them never land.
The same money buys the same holding
Say you have ₹12,000 to invest.
Fund A has a NAV of ₹12. You get 1,000 units. Fund B has a NAV of ₹480. You get 25 units.
Now suppose both funds rise 10%. Fund A's NAV becomes ₹13.20 and your 1,000 units are worth ₹13,200. Fund B's NAV becomes ₹528 and your 25 units are worth ₹13,200.
Identical. Not approximately, exactly. The unit count is just how the same amount gets sliced, and slicing a thing differently doesn't change how much of it you own.
That's the whole thing. Everything else in this article is about why it still feels wrong.
What NAV actually is
Net asset value is what one unit of the scheme is worth today. Take everything the scheme holds, subtract what it owes, divide by the number of units outstanding.
Notice what's not in there. Nothing about whether the fund is good. Nothing about whether it's expensive relative to what it holds. A share price at least tells you something about how the market values that company. A NAV is a division sum, and the number it lands on is mostly a matter of how long the scheme has existed and where it started.
A fund launched in 2005 has had twenty years for its NAV to move. A fund launched last year hasn't. That's the main reason one number is large and the other is small. It says nothing about which one you'd rather own.
Where the confusion comes from
Three sources, and they compound.
Shares. Most people meet the idea of a "price" through stocks, where price relative to earnings genuinely means something. That instinct carries over and there's nothing to carry it to.
The new fund offer. Units at ₹10 during an NFO look like a ground-floor opportunity. They aren't. It's a starting number chosen for convenience, and a new scheme has no record to look at, which is a reason for more caution rather than less.
How it gets sold. "Only ₹10 per unit" is an easy line. I've heard it used, and it's the reason I bring this up unprompted with anyone who's newly investing.
The question that actually matters
If NAV is a division sum, what should you be looking at instead?
Cost, for one. The expense ratio is deducted from the scheme every year, it applies whatever the NAV happens to be, and it's the difference between a direct and a regular plan. We've written about that on our page comparing direct and regular plans, including the part where we tell you when you're better off without us.
Then the things that take longer to assess: what the scheme actually holds, whether that suits your horizon, how it behaved in a bad stretch, and whether you'd have stayed invested through it. None of those questions has a two-digit answer, which is exactly why the NAV shortcut is so appealing.
What about the dividend option, then?
This one is the NAV confusion wearing a different hat, so it belongs here.
When a scheme pays out under the income distribution option, the NAV falls by roughly the amount paid out. It has to. The money left the scheme, so the units are worth less than they were the day before.
Which means the payout isn't a bonus on top of your holding. It's part of your own holding, handed back to you and taxed in your hands. People choose that option believing they're getting something extra, and what they're actually doing is forcing a partial withdrawal on a schedule somebody else decides.
If you genuinely need money arriving regularly, a Systematic Withdrawal Plan gives you the same thing with control over the amount and the date. If you don't need it, letting it stay invested is the simpler choice.
Two related versions of the same mistake
"Let me wait for the NAV to fall." If the scheme suits your goal, waiting for a lower NAV is just market timing with extra steps. And the whole design of a SIP is to stop you needing to be right about that.
"I own 4,000 units, so I'm doing well." Unit count means nothing on its own. Somebody with 40 units of a different scheme may hold considerably more money. The only number that answers the question is units multiplied by NAV, which is the value your statement already prints for you.
Why a new fund offer is not a discount
This deserves its own section because it's the version that costs the most.
An NFO opens at ₹10 a unit. That is a starting number, chosen because it's tidy. It is not a launch price, there is no early-bird advantage, and the fund isn't cheaper than a scheme that has been running for fifteen years.
What an NFO actually lacks is a record. With an existing scheme you can look at what it holds, how it has behaved through a bad stretch and whether it did what it said it would. With a new one there is nothing to look at, which is a reason to be more careful rather than less.
Sometimes an NFO is genuinely offering something not otherwise available, a strategy or a category you can't get elsewhere. That's a real reason. "Units are only ₹10" isn't one, and if that's the main argument being made to you, it tells you something about who is making it.
Where the NAV number does matter
Two places, and both are about timing rather than value.
The NAV applied to your purchase or redemption depends on when the fund house receives your request against the scheme's cut-off time. Submit after cut-off and you're on the next business day's NAV. That's a normal part of how this works, not something going wrong.
And when you redeem, the value you get is units multiplied by the NAV on the applicable day, which is why the exit-load and holding-period position matters more than the NAV itself. Our guide on stopping a SIP and withdrawing money covers that.
So next time somebody tells you a fund is cheap
Ask what they mean. If they mean the NAV is low, they've told you how old the scheme is and nothing else. If they mean the expense ratio is low, that's a real statement worth following up.
It's a small thing to get right and it protects you from a whole category of bad recommendation. If you'd like somebody to go through what you currently hold and what it costs you, Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working since 2014, and there's no charge for the review. Get in touch, or if you're starting from scratch, how SIP investment works is the better place to begin.
