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The three numbers you must check before investing in any fund.
Before you compare funds or track your returns, you need to understand the three numbers that show up on every single fund page: NAV, Expense Ratio, and Exit Load. None of these tell you if a fund is "good" — but misreading any one of them can quietly cost you money or lead you to the wrong conclusion about a fund's performance.
NAV, or Net Asset Value, is the price of one unit of a mutual fund. It's calculated by taking the total value of everything the fund holds — stocks, bonds, cash — subtracting the fund's liabilities and expenses, and dividing by the total number of units outstanding. It's updated once a day, at the end of trading, not in real time like a stock price.
NAV Formula: NAV = (Total Assets − Total Liabilities) ÷ Total Units Outstanding
For example: a fund with ₹100 crore in assets, ₹2 crore in liabilities, and 5 crore units outstanding has an NAV of ₹19.6 per unit — exactly what you'd pay to buy one unit that day.
A ₹10 NAV fund is not "cheaper" or "better value" than a ₹500 NAV fund — the NAV level itself says nothing about future returns. What matters is the percentage growth of the NAV over time. A fund at ₹500 that grows to ₹550 has given the same 10% return as a fund at ₹10 that grows to ₹11. Comparing funds by NAV price is like comparing two stocks purely by their share price instead of their percentage returns.
This myth is especially common with New Fund Offers (NFOs), which often launch at ₹10 NAV and get marketed as "cheap" compared to an existing fund trading at ₹80 or ₹100. In reality, the NFO has no track record at all, while the existing fund's higher NAV simply reflects years of compounded growth — the NAV number tells you nothing about which is the better investment going forward.
The Expense Ratio is the annual fee a fund charges to manage your money, expressed as a percentage of your investment. It covers the fund manager's salary, research, admin, and distribution costs. This fee is deducted automatically from the fund's returns every day — you never see a separate bill, but it directly reduces what you earn.
For example: two funds both deliver 12% gross returns in a year. Fund A has a 0.5% expense ratio (Direct plan) and hands you roughly 11.5%. Fund B has a 2% expense ratio (Regular plan) and hands you roughly 10%. On a ₹10 lakh investment held for 20 years, that 1.5% difference compounds into a gap of several lakh rupees — the expense ratio matters far more over long horizons than it looks on a single year's factsheet.
| Factor | Direct Plan | Regular Plan |
|---|---|---|
| Bought via | Directly from AMC or app, no intermediary | Distributor, broker, or bank advisor |
| Expense ratio | Lower — no commission built in | Higher — includes distributor commission |
| NAV | Always slightly higher than Regular plan of the same fund | Always slightly lower than Direct plan of the same fund |
The trade-off isn't purely mechanical, though. A Regular plan's distributor commission pays for advice and hand-holding — useful for someone who genuinely wants guidance on fund selection and rebalancing. A Direct plan assumes you're comfortable researching and deciding on your own. Neither is universally "better" — it depends on whether you're paying for a service you'd otherwise do yourself, or one you actually need.
Exit Load is a small fee charged if you redeem (sell) your units before a specified holding period, usually to discourage short-term withdrawals from the fund. It's deducted directly from your redemption amount, not billed separately.
Because each SIP instalment has its own purchase date, redeeming a SIP portfolio touches two separate clocks at once: the exit-load clock (usually 1 year for equity funds) and the capital gains tax clock (also 1 year, for the short-term vs long-term distinction). If you redeem your entire SIP holding at once after, say, 18 months, the instalments from the first 6 months qualify for long-term capital gains treatment and no exit load, while the most recent 6 months' worth of instalments are still within the 1-year exit-load window and get taxed as short-term gains too. Most fund platforms redeem oldest units first by default (FIFO), which usually works in your favor, but it's worth checking rather than assuming.
Key Takeaway: NAV is just the current unit price and has no bearing on returns — never compare funds by NAV alone. Expense Ratio is a recurring fee that compounds against you over time, so Direct plans generally win over long horizons, though Regular plans can be worth it for genuine advisory value. Exit Load is a short-term redemption penalty, and in a SIP it resets with every instalment, not from your first investment date — which also means exit load and capital gains tax can apply differently across instalments in the same redemption.
No. You can invest any amount regardless of NAV — a ₹5,000 SIP simply buys fewer units of a ₹500 NAV fund and more units of a ₹50 NAV fund. The rupee amount you invest is what matters, not the unit count.
Because Direct plans have a lower expense ratio, more of the fund's returns stay within the scheme, letting the NAV grow faster over time compared to the Regular plan of the exact same fund.
Yes, most AMCs allow switching, though it's treated as a redemption plus a fresh purchase, which can trigger exit load and capital gains tax depending on how long you've held the units.
No, it's never billed separately. It's deducted daily from the fund's assets before the NAV is calculated, so it's already reflected in the returns you see.
No. Many funds, especially after the standard holding period, charge zero exit load. Some categories like certain debt funds may have no exit load at all — always check the scheme document.
Not necessarily. Expense ratio matters, but it should be weighed alongside consistency of returns, fund manager track record, and how well the fund fits your goal — not treated as the single deciding factor.
Not necessarily — since each instalment has its own purchase date, only instalments still within the exit-load window (typically the most recent ones) are charged, while older instalments that have crossed the holding period are exempt.
Disclaimer: This article is for general educational purposes only and does not constitute personalized financial, investment, tax, or legal advice. Figures, rates, and rules mentioned may change over time — verify current details with an official source or a qualified professional before making financial decisions.