Mutual Fund NAV Calculation Methodology
Mutual Fund NAV Calculation Methodology explains how the Net Asset Value of a mutual fund scheme is computed daily — dividing the total market value of all securities held in the portfolio (less liabilities) by the number of units outstanding — and the valuation principles applied to different asset classes including equities, bonds, and money market instruments.
The NAV formula is straightforward in principle: NAV = (Total Assets of the Scheme – Total Liabilities) ÷ Number of Units Outstanding. Total assets include market value of all securities, accrued income, cash and equivalents, and receivables. Liabilities include accrued expenses, management fees payable, and other payables. The NAV is calculated and published for every business day, and AMFI requires fund houses to upload NAV data to the AMFI NAV database by 11 PM on each trading day.
Equity valuation within the fund uses the closing price on the principal stock exchange (NSE for most securities) on the relevant business day. SEBI's valuation norms require that if a security is not traded on the valuation day, the last traded price from a specified number of days back is used, with appropriate discounting for illiquidity in case of long non-trading gaps. Unlisted equity holdings — permissible in certain hybrid schemes and special categories — follow prescribed SEBI valuation guidelines using book value, earnings-based, or transaction-based approaches.
Debt and money market instruments use mark-to-market valuation for instruments with maturity greater than 60 days, based on matrix pricing published by AMFI-accredited valuation agencies — ICRA Analytics (formerly ICRA Management Consulting Services) and CRISIL. For instruments maturing within 60 days, amortisation-based pricing (accrual method) was permitted under earlier norms, but SEBI progressively shifted all debt instruments to MTM to eliminate the artificial NAV smoothing that had obscured credit risk.
Gold ETFs and gold fund-of-funds value gold holdings based on the London Bullion Market Association (LBMA) afternoon fix price converted at the RBI reference rate for USD-INR, following AMFI guidelines. Real estate investment trust (REIT) units held in hybrid funds are valued at their NSE or BSE closing price.
Split between growth option and dividend (IDCW) option NAVs arises from the income distribution process: when a dividend is declared under the IDCW (Income Distribution cum Capital Withdrawal) option, the NAV falls by the per-unit distribution amount on the ex-date, as income is distributed from the scheme assets. Growth option NAVs do not face this periodic reset and benefit from full compounding of undistributed income.
NAV cut-off time rules — updated by SEBI in 2020 — determine which day's NAV an investor receives: for equity and hybrid funds, a purchase transaction must be both placed and funds received by the AMC before 3 PM to receive the same-day NAV, ensuring fair treatment across investor types.