Every mutual fund comes with three numbers: NAV, AUM, and Expense ratio. Most investors ignore two of them and misread the third.
Get these wrong, and you could spend years picking the “cheaper” fund while quietly losing lakhs to fees you never noticed. Get them right, and you have a clearer, more honest way to compare any fund before you invest a single rupee.
This blog breaks down what each number actually means, why a lower NAV is not what you think it is, and the one cost that could be eating ₹14–15 lakh from your corpus over 20 years.
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You have picked a mutual fund. You have googled the returns. You are ready to invest.
Then the fund information sheet hits you with three numbers you did not ask for: NAV ₹847. AUM ₹12,400 crore. TER 0.68%.
Most people skim past these and click invest anyway. That is a mistake. These three figures tell you the per-unit price of the fund, whether the fund is the right size for its strategy, and exactly how much of your gross return you will actually keep each year.
Here is what each one means and why it matters to your money.
What Is NAV in a Mutual Fund?
NAV, or Net Asset Value, is the price of one unit of a mutual fund. It is calculated every business day after market close and tells you the current worth of a single unit based on what the fund’s portfolio is actually worth that day.
NAV formula:
NAV = (Total Assets of the Fund – Total Liabilities) ÷ Total Units Outstanding
A concrete example: if a fund holds securities worth ₹100 crore, holds ₹2 crore in cash, owes ₹7 crore in fees and other liabilities, and has 50 lakh units outstanding, the NAV per unit is:
(₹102 crore – ₹7 crore) ÷ 50 lakh = ₹190 per unit
When you buy mutual fund units, you buy at the current NAV. When you redeem, you sell at the NAV on the redemption date. Your actual gain or loss is simply the percentage change in NAV between when you bought and when you sold.
NAV cut-off time: For most equity mutual funds, the cut-off is 3:00 PM IST. Submit your purchase request with cleared funds before 3 PM and you receive that day’s NAV. Submit after 3 PM and you receive the next business day’s NAV. Liquid funds and overnight funds follow different cut-off rules.
NAV does not change on weekends or public holidays because markets are closed and portfolio prices do not move. NAV can practically never reach zero in a diversified fund because the underlying portfolio would have to lose all its value simultaneously.
What Is a Good NAV for a Mutual Fund?
There is no such thing as a good or bad NAV in absolute terms.
This is the most common mistake new investors make. A mutual fund NAV of ₹12 is not a bargain. A NAV of ₹1,200 is not expensive. What matters is the percentage change in NAV over time, not the rupee number.
Here is the maths. Priya invests ₹10,000 in Fund A at NAV ₹20, getting 500 units. Her colleague Akhil puts the same ₹10,000 into Fund B at NAV ₹500, getting 20 units. Both funds rise 15%. Priya’s investment grows to ₹11,500. So does Akhil’s. The starting NAV made zero difference.
A low NAV usually just means the fund launched recently or has paid out dividends in the past. A high NAV means the fund has compounded well over the years. Neither tells you anything about what returns to expect next.
What Is AUM in Mutual Funds?
AUM full form is Assets Under Management. It is the total current market value of all the money a fund manages on behalf of its investors combined.
If 20,000 investors each put ₹50,000 into a fund, the AUM is ₹100 crore on day one. That figure changes daily as markets move and as investors add or redeem money.
As per AMFI data (February 2026), India’s mutual fund industry manages approximately ₹82 lakh crore in total AUM. That is nearly a fivefold increase in a decade.
Why AUM matters for fund selection
AUM is not a quality badge. But it does shape how a fund operates in practice:
- Very low AUM (under ₹50 crore for an equity fund): Thin liquidity. A sudden wave of redemptions can force the manager to sell holdings quickly at poor prices, hurting all remaining investors.
- Very high AUM in small-cap funds: The fund manager cannot build meaningful positions in smaller companies without moving the stock price. Deploying thousands of crores into the small-cap space is structurally hard without diluting alpha.
- Comfortable AUM for large-cap or flexi-cap funds: The fund can trade positions cleanly. Operational efficiency improves, and SEBI’s tiered TER structure also brings the expense ratio down slightly as AUM grows.
For small-cap and mid-cap funds in particular, watch for unusually sharp AUM growth in recent months. A fund that doubled in size in one year may not be able to deploy that capital at the same quality as before.
What Is the Expense Ratio in a Mutual Fund?
The expense ratio in a mutual fund is the annual fee charged to run the fund. It covers the fund manager’s salary, administrative costs, registrar fees, custodian charges, audit fees, and distributor commissions in the case of regular plans.
TER and expense ratio mean the same thing. SEBI’s formal terminology uses Total Expense Ratio. “Expense ratio” is the everyday shorthand. They are the same number. Any source treating them as different costs is wrong.
The expense ratio is not deducted as a lump sum at year-end. It is taken out daily in tiny fractions from the fund’s NAV. You never see a separate line item. It quietly reduces your net return every day.
What is the expense ratio example?
A fund earning 12% gross returns with a TER of 1.5% delivers approximately 10.5% net to investors. The same fund in a direct plan at 0.5% TER delivers approximately 11.5% net. That 1% gap does not sound like much, but compounded over 20 years on ₹10 lakh, the difference in your final corpus is approximately ₹14–15 lakh.
SEBI Expense Ratio Caps (as per October 2018 circular)
| Fund Category | Maximum TER Per Annum |
|---|---|
| Equity funds | Up to 2.25% (tiered as AUM grows) |
| Debt funds | Up to 2.00% (tiered as AUM grows) |
| Direct plans | Roughly 0.5%–1% lower than regular plans |
SEBI requires all fund houses to publish their monthly TER on the AMFI website.
Direct plan vs regular plan expense ratio
Direct plans are always cheaper than regular plans. In a regular plan, the fund pays a commission to the distributor who recommended it to you. That commission is built into the TER, so you pay it whether you know it or not. In a direct plan, there is no distributor and no commission, so the expense ratio is lower from day one.
For long-term SIP investors, choosing the direct plan is the simplest, most reliable way to improve returns without predicting the market or picking stocks.
Use the 1% Club MF Calculator to see exactly how much a 1% TER difference costs you on your specific investment amount and time horizon.
How NAV, AUM and Expense Ratio Are Related
These three figures connect in ways that matter practically.
TER reduces NAV growth directly. The expense ratio is deducted from the fund’s asset pool each day. A fund earning 12% gross at 1.5% TER delivers roughly 10.5% net. The same fund at 0.5% TER delivers 11.5%. That 1% difference, compounded over 15 to 20 years, is not a rounding error.
AUM influences TER through SEBI’s tiered structure. As a fund’s AUM crosses certain thresholds, the maximum TER it can charge drops slightly. Larger funds pass on some cost efficiency, though the benefit is incremental.
How to use them together:
- Use NAV to track daily unit value and calculate your actual returns.
- Use AUM to assess whether the fund’s size suits its strategy (especially for small-cap and mid-cap funds).
- Use TER to compare how much of your gross return you actually keep each year.
Common Misconceptions About NAV
Myth 1: A lower NAV means a better or cheaper fund.
A ₹10,000 investment buys 833 units at NAV ₹12 or 8.3 units at NAV ₹1,200. If both funds rise 20%, both investments reach ₹12,000. The unit count adjusts. Your percentage return is identical either way.
Myth 2: A high NAV means the fund has no growth left.
NAV has no upper limit. A fund with NAV ₹1,200 has simply compounded well over the years. Its future performance depends on the portfolio and fund manager quality, not on where its NAV sits today.
The Bottom Line
NAV tells you what one unit of a mutual fund is worth today. AUM tells you how large the fund is and whether that size suits its investment strategy. The expense ratio tells you the annual cost that quietly reduces your net return each year.
The most actionable thing in this entire article: switch to direct plans. Lower TER, same fund, same manager, better compounding. The 1% Club SIP Calculator can show you the rupee difference on your own numbers.
This content is for educational purposes only and does not constitute investment advice. Please consult a SEBI-registered financial advisor before making investment decisions.