Net Asset Value (NAV) is the price per unit of a mutual fund. It is calculated daily as: NAV = (Total Assets - Total Liabilities) / Number of Outstanding Units. When you buy or sell mutual fund units, the transaction happens at the day's NAV.
Example: A mutual fund has total assets worth $500 million, liabilities of $5 million, and 50 million units outstanding. NAV = ($500M - $5M) / 50M = $9.90 per unit. If you invest $9,900, you get 1,000 units.
A common misconception: a lower NAV does not mean a fund is cheaper or a better buy. A fund with NAV of $10 is not cheaper than one with NAV of $100 — what matters is the fund's future returns. NAV is simply a reflection of past performance and fund size, not an indicator of future value.