As of August 31, 2025, the Indian mutual fund industry reported Assets Under Management (AUM) of ₹75.19 trillion. Five years earlier, on August 31, 2020, the industry’s AUM was ₹27.49 trillion. This represents a nearly threefold increase over the period, highlighting the scale of growth in managed assets. With the growing popularity of mutual funds, it is useful to understand two operational concepts often discussed: Net Asset Value (NAV) and Expense Ratio.
What is Net Asset Value (NAV)?
NAV refers to the per-unit value of a mutual fund scheme. It is calculated as:
NAV = (Market Value of Securities – Expenses) ÷ Total Units Outstanding
For example, if a fund holds ₹100 crore in securities, incurs ₹5 crore in expenses, and has 5 crore units outstanding:
NAV = (₹100 crore – ₹5 crore) ÷ 5 crore = ₹19 per unit
Key Points on NAV
- A lower NAV does not indicate a fund is more affordable or superior.
- NAV represents the portfolio value per unit on a given day.
- Evaluating mutual fund performance typically involves looking at NAV changes over time.
Example:
| Fund | NAV | Annual Return |
| A | ₹15 | 12% |
| B | ₹150 | 15% |
This shows that NAV levels alone do not determine returns.
NAV Cut-Off Timings (Source: AMFI)
| Scheme Type | Subscription Cut-Off (including Switch-in) | Redemption Cut-Off (including Switch-in) |
| Liquid & Overnight Funds | 1:30 p.m. | 3:00 p.m. |
| All Other Schemes | 3:00 p.m. | 3:00 p.m. |
Applicable NAV depends on both cut-off timing and fund realization (Source: AMFI)
| Scenario | Applicable NAV |
| Transaction and funds received before 3:00 p.m. on a business day | Same-day NAV |
| Transaction received before 3:00 p.m., but funds received after 3:00 p.m. on same/subsequent business day | NAV of the next business day (when funds are realised before 3:00 p.m.) |
| Transaction received after 3:00 p.m., but funds received before 3:00 p.m. on same business day | NAV of the next business day |
| Transaction and funds both received after 3:00 p.m. | NAV of the next business day (when funds are realised before 3:00 p.m.) |
What is Expense Ratio?
The Total Expense Ratio (TER) reflects the annual operating cost of managing a mutual fund scheme. This includes:
- Fund management fees
- Administrative and regulatory costs
- Distribution and marketing charges
- Registrar and transfer agent fees
Formula: Expense Ratio = (Total Expenses ÷ Total Assets) × 100
For instance, if a fund incurs ₹3 crore in annual costs and manages ₹100 crore in assets, the TER is 3%.
Since the expense ratio is factored into the NAV, the published NAV is net of these costs.
SEBI Guidelines on Expense Ratios
SEBI regulates the maximum TER allowed based on the fund’s asset size:
| AUM Slab | Max TER – Equity | Max TER – Other than Equity |
| First ₹500 crore | 2.25% | 2.00% |
| Next ₹250 crore | 2.00% | 1.75% |
| Next ₹1,250 crore | 1.75% | 1.50% |
| Next ₹3,000 crore | 1.60% | 1.35% |
| Next ₹5,000 crore | 1.50% | 1.25% |
| Next ₹40,000 crore | Gradual reduction of 0.05% per ₹5,000 crore | Same |
| Above ₹50,000 crore | 1.05% | 0.80% |
Source: SEBI
Information Access Points
- NAV: AMFI (www.amfiindia.com), AMC websites, scheme fact sheets.
- Expense Ratio: Scheme Information Document (SID), AMC websites, and investor platforms.
Conceptual Relevance
- NAV: Indicates per-unit value but is not a standalone performance metric. Can provide historical reference for different investment entry points.
- Expense Ratio: Represents operational cost and may vary across active and passive schemes. It is one of several factors considered when evaluating fund characteristics.
Conclusion Understanding concepts like Net Asset Value (NAV) and the Expense Ratio helps place mutual fund operations in context. While NAV reflects the per-unit value of a scheme, the expense ratio indicates the cost structure of managing it. Taken together, they offer investors useful reference points for evaluating how a fund is priced and managed, without serving as standalone measures of performance.
Disclaimer
Investments in the securities market are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not indicative of future results. This content is for informational purposes only and does not constitute investment advice.