If you’ve ever compared two mutual funds and picked the one with the ₹10 NAV over the one trading at ₹500 because it “felt cheaper,” you’re not alone. It’s one of the most common — and most costly — misconceptions in Indian retail investing. And the data suggests this myth isn’t fading; if anything, fund houses keep launching New Fund Offers (NFOs) at ₹10 precisely because this belief still sells.
Let’s break down why this myth exists, why it’s wrong, and what you should actually be looking at instead.
The Myth, In Plain Words
The belief goes something like this: “Fund A has a NAV of ₹500. Fund B has a NAV of ₹10. Fund B is cheaper, has more room to grow, and I’ll get more units for my money — so it’s the better deal.”
It sounds intuitive. It’s also completely wrong, and the reason lies in what NAV actually measures.
What NAV Actually Is
Net Asset Value (NAV) is simply the per-unit price of a mutual fund on a given day. The formula is straightforward:
NAV = (Total value of the fund’s assets − Liabilities) ÷ Total number of units outstanding
That’s it. NAV tells you what one unit of the fund is worth today. It says nothing about whether the fund is a good investment, whether its underlying stocks are attractively priced, or whether it will outperform in the future.
Here’s the part that trips people up: NAV behaves nothing like a stock price. When you buy a stock, the price reflects the market’s view of the company’s future earnings relative to a fixed number of shares. A mutual fund is different — when you invest ₹10,000 in a fund, you simply receive units in proportion to the current NAV. Invest that same ₹10,000 in a fund with an NAV of ₹20, and you get 500 units. Put it into a fund with an NAV of ₹500, and you get 20 units. In both cases, you own ₹10,000 worth of the same underlying assets. The number of units is irrelevant — what matters is how the value of what you own changes from here.
The Real-World Proof: Same Fund, Two Wildly Different NAVs
Nothing illustrates this better than looking at a single fund with two different NAVs — because when it’s the same portfolio, the same manager, and the same holdings, there’s no argument left about “quality.”
Take the HDFC Flexi Cap Fund, one of India’s oldest equity schemes, running continuously since 1995 with a track record of delivering roughly 18.3% CAGR since inception against a Nifty 500 TRI benchmark return of around 12.1% over the same period.
As of April 2026:
- The Growth Plan of this fund had a NAV of approximately ₹1,944
- The IDCW (Income Distribution cum Capital Withdrawal) Plan of the exact same fund had a NAV of approximately ₹70
Same fund manager. Same portfolio of stocks. Same expense ratio (around 1.35%). Same underlying investment strategy. The only difference is that the IDCW plan has been paying out dividends over the years, which reduces its NAV every time a payout happens, while the Growth plan lets everything compound and reinvest.
If the “higher NAV = more expensive” myth held any water, you’d expect these two to behave completely differently as investment options. They don’t. An investor who split ₹10,000 between the two plans on the same day would see identical percentage growth going forward, just a different number of units. The ₹70 NAV plan is not “cheaper” or a “better deal” — it’s the same fund wearing a different sticker price because of its payout history.
Why the Myth Persists: The NFO Trap
This misconception has real financial consequences, and nowhere is that clearer than in how it fuels demand for New Fund Offers (NFOs).
According to AMFI’s FY25 Annual Report, Indian asset management companies launched 70 equity NFOs in FY25 alone, collectively mobilising ₹85,244 crore — a sharp jump from 58 schemes and lower mobilisation in FY24. Sectoral and thematic funds were the largest category, followed by flexi cap and mid cap offerings.
A meaningful share of this money flows in because retail investors see a fresh ₹10 NAV and think they’re “getting in early” or “buying at a discount,” the same way they might think about a stock at its all-time low. But a new fund starting at ₹10 has no performance history at all. There’s nothing to evaluate — no rolling returns, no proof the fund manager can navigate a full market cycle, no data on consistency versus benchmark. You’re not buying value; you’re buying a blank slate, and paying full asset value for it just like any other fund, because ₹10 per unit was simply the starting reference point SEBI regulations require for a new scheme.
Compare that to an existing fund with a 10 or 15-year history and a high NAV. That higher number is a byproduct of compounding — it reflects that the fund has been creating wealth for existing investors for years. A high NAV is a track record, not a price tag.
What You Should Actually Be Checking
If NAV level isn’t the right yardstick, here’s what is:
1. Rolling returns versus benchmark. A single 1-year return can be misleading — it might just be a lucky window. Rolling returns show how the fund has performed across every possible 1-year, 3-year, or 5-year period, giving a much fairer picture of consistency.
2. Expense ratio. This is the annual fee an AMC charges, and it directly eats into your compounding. A seemingly small 1% difference in expense ratio, compounded over 20 years on a ₹10 lakh investment growing at 12%, can shrink your final corpus by roughly ₹18–20 lakh. This is a real, measurable cost — unlike NAV, which is not.
3. Consistency of outperformance. Has the fund beaten its benchmark in most years, or did one spectacular year skew its average? A fund that outperformed 6 of the last 7 years tells a very different story than one riding a single good year.
4. Portfolio quality and fund manager tenure. What the fund actually holds, and whether the person or team who built that track record is still managing it, matters far more than the price of a single unit.
The Bigger Literacy Gap Behind This Myth
This isn’t a fringe misunderstanding — it points to a broader gap in financial literacy. SEBI’s Investor Survey 2025, one of the largest household surveys of its kind covering over 90,000 households across India, found that while 63% of households are aware of at least one securities market product, only 9.5% actually invest in one. Even among those who do invest, only 36% demonstrated high or moderate knowledge of how these products actually work. The same survey found that 74% of mutual fund and ETF investors prefer low risk over higher returns — suggesting most retail investors are optimising for comfort and simplicity, which is exactly the kind of investor a misleading “cheap NAV” pitch is designed to appeal to.
None of this is investors’ fault. NAV genuinely looks like a price tag if nobody explains otherwise, and the industry hasn’t always been in a hurry to correct the assumption, especially during NFO season.
The Bottom Line
NAV is not a discount code, and it’s not a peak-detector either. Whether a fund’s NAV is ₹10 or ₹2,000, your returns depend entirely on the percentage growth of the underlying portfolio from the day you invest — nothing else. The next time a fund’s ₹10 NAV feels like a bargain, remember the HDFC Flexi Cap example: the same fund, same manager, same holdings, can carry two completely different NAVs depending on nothing more than its dividend history. Judge the track record, the costs, and the consistency. Ignore the sticker price.
Sources: AMFI Annual Mutual Fund Report FY2025; AMFI Monthly Note, September 2025; SEBI Investor Survey 2025; fund data from HDFC Mutual Fund and independent trackers (Ventura Securities, mysiponline), as of April 2026. This article is for educational purposes and does not constitute investment advice. Mutual fund investments are subject to market risks.