How it unfolds, step by step
The setup
Two schemes: Scheme A at NAV ₹10 and Scheme B at NAV ₹100. Set aside every transaction adjustment. Then ₹1,000 buys 100 units of A or 10 units of B. The unit counts differ by a factor of ten. That is the fact people read as cheapness. Charges are set aside for now too. Those are the costs the scheme itself bears, and any exit load. An exit load is a charge for leaving a scheme inside a stated period.
What happens next
Both then gain 10%. A's NAV becomes ₹11 and B's becomes ₹110. Either way the holding is worth ₹1,100. The different unit counts make no difference to the percentage return. A percentage applies to the money, not to the number of units the money was divided into.
What it means — and does not
The level of NAV cannot pick out the better investment. It is the denominator of a division. Several things can be compared, as long as both sides are on the same basis. What the scheme is allowed to invest in, and what it actually holds. The risk it takes, and the index it measures itself against. The period. The plan and option the units were bought under. And the cost. Expenses that a scheme bears reduce its assets, so they are already inside a NAV-based return. Subtract them again and the number is wrong twice. A lower cost can matter without making a scheme right for a particular person. And a higher past return can reflect different risk rather than better prospects.
What this does not establish
The comparison stops holding the moment the two sides are not the same thing. One scheme name can cover several plans and options. Units can be bought directly or through a distributor, and under a growth or a payout option, and those carry different costs. A short name is not enough to identify what is held. A payout also changes the NAV path. So reading two NAV values while ignoring payouts or withdrawals misstates the investor's outcome. And an annual expense figure is a rate on assets over a year. It is not a charge to subtract in full from each monthly instalment. Consider the scale. A ₹1,00,000 holding bearing a constant 1% annual cost for a year, with nothing else changing, works out at roughly ₹1,000. That amount gives the scale of the annual cost. Actual accruals, expense caps, exit loads and tax depend on the scheme and the date. The scheme's own current documents, and SEBI's and AMFI's investor material, carry the figure in force on the day it matters.
Things to check
6Are both figures for the same period, the same plan and the same option?
Does the return already include the scheme's own costs through NAV? And has a cost been subtracted a second time?
Have payouts and withdrawals been counted, or only two NAV readings?
Is the exit load, if any, being read from the scheme's current terms rather than from a remembered percentage?
Is the reader's own tax being worked out separately? The tool /tools/capital-gains-calculator keeps that step apart from the fund's own arithmetic.
Compare percentage returns on equal amounts, then check costs and payouts.
Common mistakes
5Reading a ₹10 NAV as cheap and a ₹100 NAV as expensive. The number is a denominator, not a price.
Subtracting an annual expense rate from every monthly instalment as though it were a transaction charge.
Deducting a scheme's costs again from a NAV-based return that already reflects them.
Assuming a NAV-based return is net of the reader's own tax, or of a load applying to the transaction.
Comparing two published returns without checking that the period, plan and option are the same on both sides.
- The first one returns more, because a hundred units gain more than ten units can
- The second is the more expensive of the two to hold
- The number of units, and nothing else here
Show the answer
C. The number of units, and nothing else here
Both holdings are worth ₹1,100. A percentage gain applies to the money, not to the number of units the money was divided into. The first answer is tempting, because a bigger number of units feels like more of something. It is the same money in smaller pieces. Cost is a real question. But it is disclosed separately, and it cannot be read off how high or low the NAV is.
Frequently asked
3Is a ₹10 NAV fund cheaper than a ₹100 NAV fund?
Not on that fact alone. The same money buys more units at the lower NAV and the same percentage gain produces the same value. Cost is a separate disclosure, read from the scheme's own current documents.
Should an annual expense rate be deducted from every monthly contribution?
No. It is a rate on assets over a year, not a charge on each instalment. Much of what it covers is already inside the NAV. Read the actual disclosure for how it accrues and what it includes.
Does a NAV-based return include every tax I will pay?
No. Taxes on the reader's own transaction sit outside the scheme's NAV-based performance. So does any exit load that applies on the way out. Both have to be worked out separately.