Home > Money > Question
Need Expert Advice?Our Gurus Can Help
Dev

Dev Ashish  |48 Answers  |Ask -

MF Expert, Financial Planner - Answered on Jul 18, 2023

Dev Ashish is a fee-only SEBI-registered investment advisor with over 15 years of active experience in the stock market. In 2011, he founded StableInvestor, a platform for personal finance and financial planning.
He provides professional fee-only investment advisory services to small and high networth individuals in order to help them achieve their financial goals.
Ashish's views are regularly published in national business publications. He has an MBA degree from NMIMS, Mumbai and also holds an engineering degree.... more
Nitiksha Question by Nitiksha on Jun 29, 2023Hindi
Listen
Money

Should High or Low NAV of a scheme impact your Investment Decision?

Ans: First, low NAV doesn’t mean that it’s a cheaper fund. Second, NO, cheap or low NAV is not better in mutual funds. In reality, the NAV of a fund is irrelevant and ideally, it shouldn’t even be considered when making an investment decision regarding investing in mutual funds.

Let me explain in simple terms why low NAV doesn’t matter at all.

Suppose two friends invest in 2 different mutual fund schemes having identical portfolios. But their NAVs are different. One was launched several years ago and hence, has a higher NAV of Rs 200. While the other is a relatively new fund with a NAV of Rs 20 only. But both funds have exactly the same portfolio of stocks they invest in.

Both friends invest Rs 1 lakh. The older fund investor gets 500 units at a NAV of Rs 200 per unit. While the new fund investor gets 5000 units at NAV of Rs 20 per unit. So it is true that lower NAV would give you more units while higher NAV would give you a lesser number of units.

Now let’s say that both funds rise by the same 20%. Since the portfolio is the same, the fund appreciation will be the same as well.

A 20% rise in the older fund will increase its NAV from Rs 200 to Rs 240. While that of the newer fund will increase from Rs 20 to Rs 24. At the fact of it, you might say that the older fund has risen by Rs 40 while the newer one has risen by Rs 4 only. But that is not the right way to look at it. You need to compare the value of your investment.

So older fund investor having 500 units (purchased at Rs 200 per unit) will see their investment increase from Rs 1 lakh to Rs 1.2 lakh due to the rise in NAV from Rs 200 to Rs 240.

Not surprisingly, the new fund investor having 5000 units (purchased at Rs 20 per unit) will also see his investment increase from Rs 1 lakh to Rs 1.2 lakh due to the rise in NAV from Rs 20 to Rs 24.

So inspite of the different number of units held due to different investment NAVs, the eventual value of the investment is the same. This is the reason that concept of low NAV or high NAV is irrelevant. What only matters is the future % increase in NAV. That’s it. Mutual fund schemes should not be judged on their NAVs but on their performance.

This confusion about low NAV vs high NAV arises because many investors make the mistake of looking at the fund’s NAV like stock prices. But that is not the case. Both are very different animals.

Low NAV doesn’t mean a cheaper fund. High NAV doesn’t mean an expensive fund.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
Money

You may like to see similar questions and answers below

Latest Questions
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

Close  

You haven't logged in yet. To ask a question, Please Log in below
Login

A verification OTP will be sent to this
Mobile Number / Email

Enter OTP
A 6 digit code has been sent to

Resend OTP in120seconds

Dear User, You have not registered yet. Please register by filling the fields below to get expert answers from our Gurus
Sign up

By signing up, you agree to our
Terms & Conditions and Privacy Policy

Already have an account?

Enter OTP
A 6 digit code has been sent to Mobile

Resend OTP in120seconds

x