NAV in SIP: Meaning, Formula, Unit Calculation and Impact on Returns

When you invest through a Systematic Investment Plan, each instalment purchases mutual fund units at the applicable Net Asset Value. Since the NAV may change between instalments, the same SIP amount can buy a different number of units each time.

Understanding NAV in SIP helps explain how units are allotted, how the current value of an investment is calculated and why a lower NAV does not automatically make one mutual fund better than another.

Understanding what NAV means in SIP

The NAV full form in an SIP is Net Asset Value. It represents the per-unit value of a mutual fund scheme on a particular business day. The meaning of NAV in SIP is the value used to calculate how many mutual fund units an investor receives for each instalment.

For example, if ₹5,000 is available for investment and the applicable NAV is ₹20, the investor receives 250 units:

Units allotted = ₹5,000 / ₹20 = 250 units

If the NAV for the next instalment is ₹25, the same ₹5,000 buys 200 units. Only the number of units purchased has changed.

An SIP does not have its own NAV. The NAV belongs to the mutual fund scheme and applies to eligible SIP and lumpsum transactions according to the applicable transaction rules.

The figures shown are for illustrative purpose only

How is NAV calculated?

A mutual fund’s NAV is calculated by taking the market value of the scheme’s assets, subtracting its liabilities and dividing the result by the number of outstanding units.

NAV formula:

NAV per unit = (Total value of assets − Total liabilities) / Total number of outstanding units

The scheme’s assets and liabilities are valued according to the applicable mutual fund valuation rules. NAV is calculated at the scheme and plan level, not separately for each investor.

What is included in the net value of a mutual fund’s assets?

A mutual fund’s net assets reflect what the scheme owns after accounting for what it owes.

Assets may include

• the market value of shares, bonds and other portfolio securities;
• cash and bank balances;
• accrued interest;
• dividends receivable; and
• other permitted investments and receivables.

Liabilities may include

• accrued scheme expenses;
• amounts payable for securities purchased;
• permitted fees and charges;
• statutory liabilities; and
• other payables.

The remaining value after deducting liabilities from assets is divided by the outstanding units to calculate NAV per unit.

NAV terms investors may encounter

The following terms refer to different aspects of NAV:

Closing NAV

The closing NAV is the per-unit value calculated for a scheme at the end of the relevant business day.

Applicable NAV

The applicable NAV is used to process a particular purchase, redemption or switch. It depends on the transaction type, cut-off time and, for purchases, when the money becomes available for use by the mutual fund.

Ex-IDCW NAV

When an Income Distribution cum Capital Withdrawal payout is declared, the scheme’s NAV falls to the extent of the distribution and applicable statutory deductions. The resulting value is sometimes referred to as the ex-IDCW NAV.

Indicative NAV

Indicative NAV, or iNAV, is generally associated with exchange-traded funds. It provides an indicative intraday value and is different from the end-of-day NAV used for ordinary open-ended mutual fund transactions.

For a conventional mutual fund SIP, the applicable closing NAV determines unit allotment.

Which NAV applies to an SIP instalment?

For purchase transactions, including SIP instalments, the applicable NAV depends on when:

1. the valid transaction is received; and
2. the investment amount becomes available for use in the mutual fund’s bank account before the prescribed cut-off time.

For schemes other than liquid and overnight funds, an SIP instalment ordinarily receives the same business day’s closing NAV if the transaction is valid and the money is available for use before 3:00 p.m.

If the money becomes available after the cut-off, the closing NAV of the next business day on which it is available before the cut-off generally applies.

The scheduled SIP date and applicable NAV date can therefore differ because of bank processing, intervening holidays or the timing of fund realisation. Different cut-off rules apply to liquid and overnight funds.

Source: AMFI: Cut-off timings and rule on applicable NAV.

How are units calculated for each SIP instalment?

The number of units allotted for an instalment is calculated as follows:

Units allotted = Net amount available for investment / Applicable NAV

Since NAV can change between instalments:

• a lower applicable NAV buys more units for the same amount; and
• a higher applicable NAV buys fewer units.

The investor’s total holding is the sum of units received through all successfully processed instalments.

Illustrative example of NAV calculation in SIP

Diksha, a media and PR professional from Haryana, invests ₹5,000 a month through an SIP. The applicable NAV changes during the first three instalments:

Instalment	SIP amount	Applicable NAV	Units allotted
Month 1	₹5,000	₹20	250
Month 2	₹5,000	₹22	227.273
Month 3	₹5,000	₹18	277.778
Total	₹15,000		755.051

The units are calculated separately for every instalment:

• Month 1: ₹5,000 / ₹20 = 250 units
• Month 2: ₹5,000 / ₹22 = 227.273 units
• Month 3: ₹5,000 / ₹18 = 277.778 units

Diksha’s average acquisition cost per unit is:

• Average cost per unit = Total amount invested / Total units accumulated
• Average cost per unit = ₹15,000 / 755.051
• Average cost per unit = Approximately ₹19.87

If the current NAV later reaches ₹24, the value of her investment would be:

• Current value = Total units x Current NAV
• Current value = 755.051 x ₹24
• Current value = Approximately ₹18,121

This value is not fixed and will continue to change with the scheme’s NAV.

The figures shown are for illustrative purpose only

How NAV affects an SIP investment

NAV affects an SIP in three main ways:

Unit allotment

Each instalment buys units at the applicable NAV. A change in NAV alters the number of units received for the same investment amount.

Current investment value

The current value of an SIP holding is calculated as follows:

Current investment value = Total units held x Current NAV

Investment returns

Returns depend on the amount and timing of every instalment and the current value of the accumulated units. Because an SIP involves several cash flows on different dates, XIRR is generally more suitable than a simple point-to-point return for evaluating the investor’s experience.

Factors influencing NAV in SIP

The NAV of the underlying mutual fund scheme can change because of:

Portfolio value

Equity-scheme NAVs respond to changes in the market value of portfolio stocks. Debt-scheme NAVs are influenced by the valuation of bonds and other fixed-income securities.

Interest rates and credit conditions

Changes in interest rates, bond yields and the perceived credit quality of issuers can affect the value of debt securities held by a scheme.

Income earned by the scheme

Interest, dividends and other income earned by the portfolio add to the scheme’s assets.

Scheme expenses

Permitted management and operating expenses are charged to the scheme and reflected in its NAV. The published NAV is therefore after accounting for applicable scheme expenses.

IDCW payouts

An IDCW payout reduces the scheme’s NAV to the extent of the distribution and applicable statutory deductions.

Overseas assets and currencies

For schemes investing internationally, movements in foreign asset prices and currency exchange rates can influence NAV.

The SIP transaction itself does not cause the NAV to rise or fall. NAV changes according to the scheme’s assets, income, expenses and liabilities.

Does a lower NAV mean a better mutual fund?

No. A lower NAV does not mean that a mutual fund is cheaper, undervalued or more likely to earn higher returns.

Consider two schemes with identical portfolios and expenses:

• Scheme A has an NAV of ₹10.
• Scheme B has an NAV of ₹100.

An investment of ₹10,000 buys 1,000 units of Scheme A or 100 units of Scheme B. If both portfolios gain 10%, their NAVs become ₹11 and ₹110 respectively. In both cases, the investment value becomes ₹11,000.

The number of units differs, but the percentage return is the same. The absolute NAV can reflect the scheme’s launch date, accumulated performance, distributions and unit structure.

A scheme should therefore be assessed using factors such as its investment objective, portfolio, risk level, expenses and suitability rather than its absolute NAV.

The figures shown are for illustrative purpose only

NAV vs market price

NAV and market price serve different purposes:

Basis	NAV of an open-ended mutual fund	Market price of a listed security
Meaning	Per-unit value of the scheme’s net assets	Price at which buyers and sellers trade
Determination	Based on assets, liabilities and outstanding units	Determined by demand and supply
Frequency	Generally calculated at the end of the relevant business day	Can change continuously during market hours
Transaction value	Eligible transactions are processed at applicable NAV	Trades execute at available exchange prices

ETF units trade on an exchange and therefore have both an NAV and a market price. The traded price can be above or below the NAV.

Common myths about NAV in SIP

A new fund with an NAV of ₹10 is cheaper

An NFO NAV of ₹10 is an initial unit value, not evidence that the scheme is undervalued.

A high NAV limits future growth

A high NAV generally reflects the scheme’s unit history. Future returns depend on the performance of the underlying portfolio after expenses.

Investors should stop an SIP when NAV rises

A higher NAV means the next instalment buys fewer units. Stopping an SIP solely for this reason can undermine the objective of investing regularly across different market conditions.

NAV is the same as an investor’s return

NAV shows the scheme’s per-unit value. An SIP investor’s return also depends on the amount and timing of each instalment and the units allotted.

The scheduled SIP date always determines the NAV

The applicable NAV depends on transaction validity and when the money becomes available for use before the relevant cut-off time.

Where can investors check mutual fund NAV?

Investors can check the latest published NAV through:

• the official website of the asset management company;
• the Association of Mutual Funds in India website;
• transaction confirmations or account statements; and
• authorised mutual fund platforms.

The AMC or AMFI website should be used when verifying official NAV information.

Source: AMFI: Net Asset Value

Conclusion

NAV in SIP determines how many mutual fund units an investor receives through each instalment. Since NAV changes with the value of the scheme’s portfolio, the same SIP amount may purchase more units in one month and fewer in another.

A low NAV does not make a scheme better, and a high NAV does not limit future returns. Scheme selection should be based on its investment objective, portfolio, risk, expenses and suitability for the investor’s goals.

FAQs

What is NAV in SIP?

NAV in SIP is the per-unit value used to allot mutual fund units for each successfully processed SIP instalment. An SIP does not have a separate NAV from its underlying scheme.

What is the full form of NAV in SIP?

The NAV full form in an SIP is Net Asset Value. It represents the per-unit value of a mutual fund scheme after accounting for its assets and liabilities.

How is NAV calculated in an SIP?

The scheme NAV is calculated by subtracting liabilities from total assets and dividing the result by outstanding units. SIP units are calculated by dividing the net investment amount by the applicable NAV.

What factors can cause the NAV of my SIP to fluctuate?

NAV can change because of movements in portfolio securities, interest rates, credit conditions, scheme income, expenses, IDCW payouts and currency movements in overseas investments.

How does NAV affect the long-term returns of an SIP?

NAV determines the units purchased with each instalment and the current value of accumulated units. Returns depend on the amount and timing of instalments and changes in NAV after each purchase.

Is a lower NAV always better when investing through an SIP?

No. A lower NAV means the same investment amount buys more units, but it does not indicate better value, quality or future performance.

Where can I find the daily NAV of my SIP mutual fund?

The latest NAV is available on the AMC’s official website and the AMFI website. It may also appear in account statements and on authorised investment platforms.

How does the expense ratio affect NAV in SIP?

Permitted scheme expenses are deducted from the mutual fund’s assets and reflected in the published NAV. Investors do not need to subtract the expense ratio separately.

Which NAV applies if my SIP date falls on a holiday?

If the SIP date is not a business day, processing generally takes place according to the scheme and mandate terms on the next eligible business day. The applicable NAV depends on transaction validity and fund availability before the cut-off time.

Why did I receive fewer SIP units this month?

You may receive fewer units if the applicable NAV is higher than it was for the previous instalment. Unit allotment also depends on the net amount available for investment.

Is NAV calculated every day?

Mutual fund schemes calculate and disclose NAV according to the applicable regulatory timeline. For most domestic schemes, NAV is calculated for each business day based on portfolio valuation and scheme liabilities.

Can NAV be negative?

NAV would ordinarily remain positive because it represents the scheme’s net assets per unit. A negative NAV would imply that liabilities exceed assets and is not a normal mutual fund condition.