Mutual Fund NAV and Expense Ratios: Why Every Investor Must Know These Two Numbers

 

With many Indian investors shifting from traditional saving habits to wealth-building strategies, interest in mutual funds has grown quickly. People are also beginning to invest in bonds, equities, ETFs, and hybrid instruments. But before selecting any mutual fund, two numbers—NAV and Expense Ratio—must be understood clearly. These two indicators determine how your money grows and how much gets deducted in costs.

NAV Explained in Simple Words

NAV, or Net Asset Value, is what one unit of a mutual fund is worth. NAV is declared at the end of each business day and represents the current market value of the fund’s portfolio after adjusting for all charges.

Formula:
NAV = (Total Portfolio Value – Liabilities) ÷ Number of Units

This value changes daily based on market performance.

NAV Is Not an Indicator of Cheap or Expensive Funds

Many new investors mistakenly assume that lower NAV means better entry price. This is incorrect. NAV is a starting price per unit—nothing more. If two funds grow by 12% annually, your returns will be identical regardless of whether NAV was ₹10 or ₹200.

Cut-Off Time for NAV Application

To determine which day's NAV you will receive:

• For equity/hybrid/debt funds → 3:00 p.m.

• For liquid funds → 1:30 p.m.

Both transaction and funds must be received before the cut-off.

How NAV Growth Shows Fund Performance

Suppose a fund’s NAV moves from ₹35 to ₹42 in a year.
Growth: (42 – 35) / 35 × 100 = 20%

This growth includes profits after expenses.

What Is Expense Ratio?

Every mutual fund charges a fee for managing your money. This fee is the Expense Ratio or Total Expense Ratio (TER). It is deducted daily from the fund’s total value before calculating NAV.

Components include:

• Fund manager cost

• Custodian fees

• Administration

• Legal & audit expenses

• Distribution and marketing

• Technology and compliance

Formula:
TER = (Total Expenses / Total Assets) × 100%

Why Expense Ratio Matters More Than You Think

High Expense Ratios reduce long-term returns significantly.
Consider two funds with similar portfolios:

• Fund A TER = 1%

• Fund B TER = 2%
  On a ₹10 lakh investment over 20 years at 12% returns, Fund A could grow over ₹90 lakh while Fund B may grow only around ₹72 lakh simply due to cost difference.

SEBI Rules for Expense Ratios

To protect retail investors, SEBI mandates TER caps.
Equity schemes cannot charge beyond 2.25%, and debt funds must charge lower. As the fund grows in AUM, TER must reduce.

Checking NAV and TER Before Investing

You can check these details on:

• AMC websites

• Scheme documents

• AMFI’s official portal

• Investment platforms

• Third-party aggregators

First-Time Investors

Altifi provides simple tools and clean interfaces that display NAV history, TER comparison, fund ratings, and portfolio holdings. Instead of navigating complicated documents, investors get instant clarity. Altifi is particularly useful for beginners who want to build low-cost, high-quality mutual fund portfolios with transparent data and expert insights.

Conclusion

NAV tells you the value of each mutual fund unit, while the Expense Ratio tells you how much you’re paying to stay invested. These two numbers determine the actual returns earned over time. Understanding them ensures smarter long-term planning and avoids high-cost funds that eat into profits. Today, platforms make it easier to explore, compare, and invest online, helping investors build diversified portfolios efficiently and confidently.