NAV of Rs 10 or Rs 200?

If you are planning to invest your money in a mutual fund, do not let the high and low NAV values influence your decision about short-listing a fund. As discussed, unlike shares, the absolute value of a mutual fund NAV does not say much about the performance of the fund.

Low NAV – When a fund house launches a new fund (New Fund Offer – NFO), the units of the fund are available for a standard NAV of Rs. 10 – this shouldn’t be a deterrent. Further, as the formula above states, a fund could have a lower NAV because its net assets are low or the no. of outstanding units is high (due to a temporary transition like NAV split, etc). Also, a fund’s NAV decreases proportionately, whenever it pays out dividends.

High NAV – Similarly, a high NAV could be because of a good performance over the years. But then, with mutual funds, the past performance is never a guarantee for future performance.

Myth 1 – Low NAV means More Units = More Dividends

Investors should refrain from being attracted to low NAV funds just because you realize that your money can fetch you more units and that this might be beneficial when the fund declares a dividend. Here, the investor will not really benefit because a dividend is nothing but their own money being paid out. In fact, after the dividend is paid out, the NAV is adjusted accordingly!

Myth 2 – Fund with High NAV have reached their potential

Another common myth is that mutual funds with a high NAV have mixed out their potential and that they are no longer as lucrative. Now, one must remember that mutual funds have an underlying portfolio of stocks, which are chosen by an experienced fund manager who has a well-thought strategy for entering and exiting stocks. As soon as a particular stock has met its objective, the fund manager sells the stock and buys newer ones that are likely to provide returns in line with the scheme objectives.

One must understand that at the end, it is the fund performance that should matter and not the absolute value of the NAV. The money growth will depend on how the fund is performing and not on the NAV value. Hence, a 20% growth with NAV of 20 is the same as 20% growth with NAV of 200.

 

 

 

 

*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.

 

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