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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. This lesson breaks down what each one actually means and where investors commonly go wrong.
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
A fund with ₹100 crore in assets, ₹2 crore in liabilities, and 5 crore units outstanding has an NAV of ₹19.6 per unit. This is 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.
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.
Illustration
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 fact sheet.
| 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 |
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.
1. Picking a fund because its NAV is "low"
A lower NAV doesn't mean more upside or better value — it's simply the current unit price, unrelated to future performance.
2. Ignoring the expense ratio because it "looks small"
A 1-1.5% difference seems tiny year to year, but compounded over 15-20 years it can eat a significant chunk of your final corpus.
3. Redeeming without checking the exit load
Selling just before a holding-period deadline can trigger an avoidable 1% fee — waiting a few extra days sometimes saves real money.
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. Exit Load is a short-term redemption penalty, and in a SIP it resets with every instalment, not from your first investment date.