Why Looking at a Fund's NAV Is a Terrible Way to Judge It

Ask a room full of first-time investors to pick the "better value" between a fund at ₹22 NAV and one at ₹340 NAV, and a good number will point at the ₹22 one. It feels obviously cheaper. It is also a completely meaningless comparison, and the fact that it feels intuitive is exactly what makes it dangerous.

What NAV actually is

Net Asset Value is nothing more than the fund's total assets, minus liabilities, divided by the number of units outstanding, on that day. That's the whole definition. It isn't a price set by supply and demand the way a stock's price is. It isn't a judgment on quality. It's just arithmetic — and the second half of that arithmetic, the number of units, is almost entirely arbitrary.

A fund launched in 2008 at ₹10 and grown to ₹340 today has simply compounded for seventeen years without ever splitting its units. A fund launched in 2023 at ₹10 and sitting at ₹22 today is two years into the exact same journey. Neither number tells you which fund did better — a fund that's up 120% in two years and a fund that's up 3,300% in seventeen years could both be sitting at NAVs that "look" similarly modest, and a fund that's genuinely mediocre can carry an NAV in the hundreds purely by being old.

The picture NAV genuinely cannot show you

Here's the part worth sitting with: NAV describes one number, on one day, for one fund, in isolation. It cannot show you, and was never designed to show you:

• How the fund actually performed. ₹10 growing to ₹22 and ₹10 growing to ₹15 both describe funds with completely different NAVs today depending only on when they launched — NAV alone can't even tell you which of two funds compounded faster, because you'd need to know each one's starting NAV and time period just to begin comparing.
• What it costs you. Expense ratio, exit load, the Direct-vs-Regular gap — none of this shows up in the NAV figure at all.
• What it actually holds. A fund's NAV says nothing about whether it's concentrated in ten stocks or diversified across two hundred, whether it's tilted large-cap or small-cap, or whether its biggest holding is 4% of the portfolio or 40%.
• How risky it's been. Two funds can sit at an identical NAV today having taken wildly different paths to get there — one steady, one halving and doubling twice along the way. The number at the end looks the same either way.
• Whether it's "cheap" or "expensive" in any real sense. This is the one that trips people up most, and it deserves its own section.

The illusion of "cheap"

Picture two funds, both tracking the same index, both genuinely identical in every way that matters. Fund A launched years ago and sits at a NAV of ₹500. Fund B launched last month at ₹10. You have ₹50,000 to invest.

In Fund A, ₹50,000 buys you 100 units. In Fund B, the same ₹50,000 buys you 5,000 units. If the index rises 10% tomorrow, Fund A's NAV becomes ₹550 — your 100 units are now worth ₹55,000. Fund B's NAV becomes ₹11 — your 5,000 units are now worth ₹55,000. Identical outcome. You didn't get more for your money by "buying more units." The unit count is just a different way of slicing the exact same pie, and a bigger slice count doesn't mean a bigger pie.

Different unit counts. Identical value. That's the whole trick.

This is precisely the same illusion an NFO's "still just ₹10!" marketing leans on — a low starting number that feels like a bargain and isn't one, because there was never a "regular price" it was discounted from in the first place.

What to actually look at instead

None of this means NAV is useless — you need it to calculate how many units your money buys, and to track your own holding's day-to-day value once you own it. It's simply the wrong tool for the one job people keep trying to use it for: deciding which fund is better. For that, look at:

• CAGR across multiple periods (1Y, 3Y, 5Y, since inception) — the actual rate your money would have compounded at, which is what NAV-alone can never show without a starting point and a date attached.
• Expense ratio and the Direct/Regular gap — what the fund actually costs you every year.
• Category and portfolio composition — what you're actually invested in, not what number is printed next to it.
• Volatility and drawdown — how rough the ride was to get to today's number.
• Consistency versus the benchmark — whether it beat its index reliably, or got lucky once.

Every one of these is a real signal. NAV, taken alone, is not — and the moment you catch yourself thinking "that one's cheaper," that's the exact moment worth pausing on.

Atin Kumar Agrawal, Abundance Financial Services — ARN-251838 (AMFI Registered Mutual Funds & SIF Distributor). Compare funds by what actually matters on our screener — or book a free consultation if a "cheap NAV" pitch is the reason you're considering a fund.