How NAV and Expense Ratios Impact Your Mutual Fund Returns
When investing through a mutual fund investment platform, one of the most common points of confusion is the difference between a fund’s Net Asset Value (NAV) and its Expense Ratio. Many new investors assume that a lower NAV means a cheaper fund, or that expense ratios don’t matter much. In reality, both these numbers play a vital role in determining your actual returns — and understanding them can make you a smarter investor.
What Exactly is NAV?
NAV is the per-unit value of a mutual fund. It tells you how much each unit of the fund is worth on any given day. The formula is simple:
NAV = (Market Value of All Securities – Liabilities) / Total Outstanding Units
If a mutual fund’s total portfolio is worth ₹100 crore and its liabilities (expenses) are ₹5 crore with 5 crore units, the NAV would be ₹19 per unit.
So, does that mean a fund with a NAV of ₹19 is cheaper than one with a NAV of ₹190? Not at all. NAV is not the same as price — it simply represents the book value of the fund.
NAV Myths and Truths
Let’s bust a popular myth:
A lower NAV does not mean a “cheaper” or “better” mutual fund.
For example:
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Fund A has a NAV of ₹15 and has grown 12% in a year.
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Fund B has a NAV of ₹150 and has grown 15% in the same period.
Even though Fund B has a higher NAV, it has delivered better returns. What matters is growth percentage, not absolute NAV.
The Role of Expense Ratios
The Expense Ratio (or Total Expense Ratio – TER) shows how much the fund house charges you annually for managing your money. This includes fund management fees, administration costs, marketing, and compliance.
Formula:
Expense Ratio = (Total Expenses / Total Assets) × 100
Example: If a fund has ₹100 crore in assets and spends ₹3 crore on management and operations, the expense ratio is 3%.
This fee is deducted daily from the fund’s total assets, so the NAV you see is already net of costs.
Why Expense Ratios Matter to Investors
The impact of expense ratios compounds over time.
Let’s say you invest ₹10 lakh for 10 years in two similar funds — one with a 1% expense ratio and another with 2%. Assuming both earn a gross return of 12% annually:
| Fund | Expense Ratio | 10-Year Net Value |
|---|---|---|
| Fund A | 1% | ₹27.5 lakh |
| Fund B | 2% | ₹24.5 lakh |
That 1% difference in fees costs you ₹3 lakh over 10 years.
So when comparing mutual funds, always look beyond returns — check the expense ratio.
How SEBI Regulates Expense Ratios
To protect investors, SEBI caps expense ratios based on a fund’s size. Larger funds, with higher AUM, charge lower percentages. For instance, equity funds with AUM above ₹50,000 crore cannot charge more than 1.05%. For debt funds, the ceiling is 0.80%.
This regulation ensures investors in larger funds benefit from economies of scale.
NAV Timing and Cut-Offs
NAV also depends on transaction timing.
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Equity, Debt, and Hybrid Funds: Transactions before 3:00 p.m. get same-day NAV.
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Liquid and Overnight Funds: Purchases before 1:30 p.m. and redemptions before 3:00 p.m. qualify for same-day NAV.
Transactions made after these cut-offs receive the next business day’s NAV.
How to Use This Knowledge
As an investor, you don’t have to calculate NAV or TER manually. Instead, you can:
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Use mutual fund fact sheets for quick insights.
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Compare expense ratios on the fund’s official site or AMFI portal.
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Use investment platforms like Altifi to view performance, NAV history, and expense data all in one place.
When selecting a fund, prioritize consistent returns, reasonable expense ratios, and alignment with your goals.
Conclusion
NAV and expense ratios might look like technical jargon, but they directly affect your wealth creation journey. NAV helps you understand fund value, while expense ratios show you the cost of that performance.
With a reliable online investment platform like Altifi, investors can easily track NAVs, compare costs, and make smarter, goal-based investment decisions. In the long run, understanding these basics can be the difference between average and exceptional returns.
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