Mark to market and NAV
How a mutual fund prices what it holds every day, and why that price reaches the investor through the NAV
Rules as on 12 October 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room: a fund bought a bond for ₹100 last month. What is it worth in the fund's books today? Take two or three answers. The deck shows that the answer is today's market-based price, not the ₹100 paid.
A fund values what it holds at today's price, not at the price it paid.
That is mark to market. Because it is done every business day, a rise or fall in the price of a share or bond shows up in the NAV the same day.
Trainer notes
NAV means net asset value: the value of one unit of a scheme. The few items that are not valued at market-based prices, such as short-term bank deposits, come up on slide 5.
Four terms to know
Mark to market
Valuing a holding at its current market price, or the closest estimate of it, each time the books are drawn up.
NAV
Value of the scheme's investments plus other assets, minus what it owes, divided by the number of units.
Amortisation
Moving a bond's book value from cost to face value in equal daily steps, whatever the market does. No longer used.
Fair value
An estimate of the price a holding would fetch when no usable traded price exists. It follows a written method.
Take-away: NAV is rounded to four decimals for debt schemes and index funds, and to at least two for others.
Source: SEBI Master Circular for Mutual Funds, 20 March 2026, paragraphs 9.1.2 and 9.1.3.
Trainer notes
The same term is used for the daily settlement of futures contracts, where gains and losses are paid in cash each day. This deck is about fund valuation only. Amortisation ended for mutual fund debt holdings on 1 April 2020; see slide 9.
One day in the life of a NAV
A SMALL HYBRID SCHEME
Monday: shares ₹58 crore, bonds ₹40 crore, cash and receivables ₹3 crore. It owes ₹1 crore. Units issued: 10 crore.
Tuesday: its shares close 2% lower. Its bonds are priced 0.4% higher.
- Monday: 58 + 40 + 3 − 1 = ₹100 crore of net assets. ₹100 crore ÷ 10 crore units = a NAV of ₹10.00.
- Tuesday, shares: ₹58 crore less 2% = ₹56.84 crore. Bonds: ₹40 crore plus 0.4% = ₹40.16 crore.
- Tuesday: 56.84 + 40.16 + 3 − 1 = ₹99 crore. ₹99 crore ÷ 10 crore units = a NAV of ₹9.90.
- Nothing was bought or sold. The NAV moved 1% because the holdings were priced again.
Result: The NAV changed with no trade by the fund. Repricing the holdings alone moved it from ₹10.00 to ₹9.90.
Illustration with an invented scheme and assumed figures. Units and other items held constant.
Trainer notes
Keep the units, cash and liabilities unchanged so that the room sees one cause only. In practice expenses accrue daily and units change with purchases and redemptions. The fall is assumed for arithmetic; it is not a view on any market.
How each holding is priced
| Holding | Price used | Point to note |
|---|---|---|
| Listed shares that trade | Last quoted closing price on the exchange where the share mainly trades. | With no trade that day, a price up to 30 calendar days old may be used. |
| Bonds and money market paper | Average of the security-level prices given by valuation agencies. | Whatever the time left to maturity. Government securities too. |
| Repos longer than overnight | Marked to market, with prices from valuation agencies. | From 1 January 2025. Earlier: cost plus accrual up to 30 days. |
| Short-term bank deposits | Cost plus the interest accrued so far. | Money parked until it is invested. Not marked to market. |
| Shares that do not trade | Fair value 'in good faith', on SEBI principles approved by the AMC's board. | Such illiquid shares are capped at 15% of a scheme's assets. |
Source: SEBI Master Circular, 20 March 2026, Chapter 10 (10.2, 10.5 to 10.7); SEBI circular, 26 November 2024 (repos).
Trainer notes
A share is 'non-traded' if it has not traded on any exchange for 30 calendar days. Any illiquid shares above the 15% limit are valued at zero. For a bond rated below investment grade the agencies give a price or a standard haircut. A fund house may depart from an agency price, but must record the reason and disclose it on its website.
Two ways to carry a 60-day paper
| Amortised value | Market-based price | |
|---|---|---|
| Day 0 | 98.50 | 98.50 |
| Day 10 | 98.75 | 98.80 |
| Day 20 | 99.00 | 98.55 |
| Day 30 | 99.25 | 98.90 |
| Day 40 | 99.50 | 99.55 |
| Day 50 | 99.75 | 99.70 |
| Day 60 | 100.00 | 100.00 |
Read the chart
- Bought at ₹98.50, repaid at ₹100 after 60 days. Amortisation adds the same ₹0.25 every 10 days.
- The market-based price moves with interest rates and with news about the borrower.
- On day 20 the market-based price is ₹98.55. The amortised value is ₹99.00, which is ₹0.45 more.
Illustration with an invented paper and assumed prices. Not market data.
Trainer notes
Amortisation: (100 − 98.50) ÷ 6 = ₹0.25 for every 10 days. Both lines meet at ₹100 only if the borrower repays in full. The gap on day 20 is the problem the next slide works through.
Why the gap matters: who leaves first
IF BOOKS IGNORE MARKET
A scheme has 1,000 units. Its paper stands in the books at ₹1,00,000, so the NAV is ₹100.
The paper would fetch only ₹98,000 in the market.
An investor redeems 500 units.
- The redeeming investor is paid 500 × ₹100 = ₹50,000.
- To pay, the scheme sells paper at market prices. Paper worth ₹98,000 − ₹50,000 = ₹48,000 is left.
- The 500 units that remain are backed by ₹48,000: ₹96 a unit. The whole ₹2,000 gap now sits with them.
- With mark to market the NAV would have been ₹98,000 ÷ 1,000 = ₹98 for both groups.
Result: Books above market price favour whoever redeems first. Marking to market treats both groups alike.
Illustration with an invented scheme and assumed figures. Costs of selling are ignored.
Trainer notes
SEBI's 2019 board paper on valuation made this point: values that do not reflect the realisable price may encourage a first-mover advantage at the cost of the remaining investors. It works the other way too: books below market price short-change the investor who redeems.
The rules in numbers
Four figures from SEBI's rules on NAV and valuation, as in force on 12 October 2026.
- NAV DECLARED BY
- 11 PMOn the same business day for most schemes. Some declare the next morning.
- DECIMALS IN NAV
- 4For debt schemes and index funds. At least 2 for other schemes.
- NO TRADE FOR
- 30 daysA share not traded for 30 calendar days is treated as non-traded.
- CAP ON ILLIQUID SHARES
- 15%Of a scheme's total assets. Anything held above it is valued at zero.
Source: SEBI Master Circular for Mutual Funds, 20 March 2026, paragraphs 9.1.3, 9.3.4, 10.2.2 and 10.7.1.
Trainer notes
Next-morning declaration: 10 AM for funds of funds and for schemes with at least 80% of assets overseas, and 9 AM for schemes holding exchange-traded commodity derivatives. These are rules, not market figures, so they carry no 30-day lag. Check them against the latest Master Circular once a year.
If you learnt this from older material
Amortisation was allowed for short-dated debt paper for years. SEBI narrowed it in steps, then ended it.
What older material says
- Debt paper with under 182 days left was amortised in 2008.
- The limit was cut to 91 days in 2010 and to 60 days in February 2012.
- It was cut to 30 days in 2019. Repos of up to 30 days stayed at cost plus accrual.
What holds now
- Since 1 April 2020 no debt or money market paper is amortised.
- Such paper is valued at agency prices, whatever the time left to maturity.
- Since 1 January 2025 repos are marked to market too, with agency prices beyond overnight.
Sources: SEBI board memorandum on valuation, March 2019; SEBI circulars of 24 Sep 2019 and 26 Nov 2024; Master Circular, 20 Mar 2026.
Trainer notes
The 182-day, 91-day and 60-day history is from SEBI's own board memorandum of March 2019. In the months before 1 April 2020 the 30-day limit applied to all such paper, and the amortised price had to stay close to the agency price. A liquid or overnight fund's NAV can therefore fall on a day.
Four things people get wrong
Misconception'A liquid fund's NAV cannot fall.'
What is trueIts paper is marked to market like other debt holdings. Moves are usually small because the paper is short-dated, but a fall on a day is possible.
Misconception'A fall in NAV is only on paper.'
What is trueFor the scheme, nothing was sold. But an investor who redeems that day is paid at that NAV, so for that investor it is real.
Misconception'A bond's price is quoted like a share's.'
What is trueMany bonds do not trade daily. Agencies work out a price from trades in that bond or in similar ones. It is an estimate, made by a set method.
Misconception'NAV shows what the fund paid.'
What is trueNAV uses current prices. What the fund paid for a holding does not enter the NAV calculation.
Trainer notes
On the first point, do not call any fund category safe. On the third, the agencies follow a documented 'waterfall': traded yields in the security first, then other evidence. Do not name the agencies.
Explaining a one-day fall in NAV
Say what NAV is
The value of the scheme's holdings at that day's prices, less what it owes, for each unit.
Find what was repriced
Share prices, bond yields or a change in a borrower's credit rating. The fund's factsheet and portfolio show what it holds.
Separate price from default
A lower bond price is not the same as a borrower failing to pay. Say which of the two has happened.
Stop at the facts
Do not predict a recovery and do not suggest a switch or a redemption. Returns are not assured.
Take-away: We explain how the NAV was arrived at. We do not forecast where it goes next.
Trainer notes
This is the conversation a mutual fund distributor has most often after a sharp market day. Rehearse it with a debt scheme and an equity scheme. If the client wants to act, the decision is theirs; we give the facts and the scheme documents.
Check yourself
Question 1: A scheme's investments are worth ₹206 crore, other assets are ₹6 crore and it owes ₹2 crore. It has 20 crore units. What is the NAV?
Answer: (206 + 6 − 2) ÷ 20 = ₹210 crore ÷ 20 crore units = ₹10.50 a unit.Question 2: A paper bought at ₹98.80 is repaid at ₹100 after 30 days. What is its amortised value after 10 days? May a mutual fund carry it at that value today?
Answer: (100 − 98.80) ÷ 30 = ₹0.04 a day, so ₹99.20 after 10 days. No. Amortisation ended on 1 April 2020; the paper is valued at agency prices.Question 3: A client says: 'My liquid fund's NAV dipped yesterday. I thought that could not happen.' What do you explain?
Answer: Its holdings are priced at market-based prices every day, so the NAV can fall as well as rise. Moves are usually small. Check what was repriced before saying more.
Trainer notes
Question 2 checks both the arithmetic and the date of the rule change.
Sources and disclaimer
Sources for the figures in this explainer
- NAV formula, rounding and declaration times: SEBI Master Circular for Mutual Funds, 20 March 2026, paragraphs 9.1.2, 9.1.3 and 9.3.4.
- Valuation of shares, debt and money market securities, government securities, deposits and illiquid shares: same Master Circular, Chapter 10.
- End of amortisation from 1 April 2020: SEBI circular SEBI/HO/IMD/DF4/CIR/P/2019/102, 'Valuation of money market and debt securities', 24 Sep 2019.
- Repos marked to market from 1 January 2025: SEBI circular SEBI/HO/IMD/IMD-I PoD-1/P/CIR/2024/163, 26 Nov 2024.
- Earlier amortisation limits (182, 91, 60 and 30 days) and the first-mover point: SEBI board memorandum 'Valuation of money market and debt securities by Mutual Funds', March 2019.
- The schemes, the paper and all figures in the worked examples and the chart are invented for illustration. They are not market data.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).