NAV, Total Expense Ratio and Pricing of Mutual Funds
Chapter 7 is highly numerical. NAV calculation, TER limits, cut-off times, and applicable NAV rules are tested with specific numbers and scenarios. Master the formulas and the cut-off times — this chapter rewards precise preparation. Expect 6–9 questions.
NAV — Net Asset Value
NAV is the per-unit market value of a mutual fund scheme. It is calculated daily after market close.
- Assets = market value of all securities in the portfolio + accrued income + other assets
- Liabilities = accrued expenses, management fees, audit fees, other payables
- NAV is published daily by AMCs on their website and AMFI website
- SEBI requires NAV to be declared by 11:00 PM on the same business day
- Liquid and overnight funds declare NAV by 10:00 AM the next day
Cut-Off Times and Applicable NAV
The applicable NAV depends on when the transaction request is received AND when funds are realised by the AMC.
| Fund Type | Cut-Off Time | Before Cut-Off | After Cut-Off |
|---|---|---|---|
| Liquid / Overnight | 1:30 PM | Previous day's closing NAV | Same day's closing NAV |
| All other funds | 3:00 PM | Same day's closing NAV | Next business day's NAV |
Total Expense Ratio (TER)
TER is the annual fee deducted from the scheme's assets to cover management, distribution, and administrative costs. It is expressed as a percentage of daily average AUM and deducted daily from NAV.
| AUM Slab | Max TER — Equity | Max TER — Debt |
|---|---|---|
| Up to ₹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% |
| Above ₹50,000 crore | 1.05% | 0.80% |
Sample Practice Questions
Frequently Asked Questions
How is the NAV of a mutual fund calculated?
NAV = (Market Value of Assets − Liabilities) / Number of outstanding units. It is calculated daily after market close using end-of-day prices of all securities in the portfolio.
What are the cut-off times for NAV applicability?
For liquid and overnight funds: 1:30 PM cut-off. For all other funds: 3:00 PM cut-off. Transactions before cut-off get same-day NAV; after cut-off get next business day NAV.
What is TER in mutual funds and how does it affect returns?
TER is the annual fee charged by the AMC as a percentage of AUM. A higher TER means lower net returns. Direct Plans always have lower TER than Regular Plans.