NAV of Mutual Fund Scheme





First time investors into mutual funds are often confused with the term Net Asset Value (NAV) wondering whether they should be buying a fund with higher or lower NAV.

Is it better to buy a fund which has a lower NAV?

Investing in mutual funds is different from stocks. When you buy mutual fund units the NAV , is calculated on the basis of the current market price all the as sets that the mutual fund owns. It represents the fund's intrinsic worth. Financial planners suggest it is irrelevant how high or low the NAV is. If the amount of your investment re mains unchanged, and two comparable funds have identical portfolios, a low NAV would result in the investor being allocated a higher number of units held and consequently a high NAV would mean lower number of units allot ted. In both the case, the value of your investment, would be identical. Going ahead, the stocks present in a portfolio and their subsequent movement deter mine returns from a fund, making the value of the NAV immaterial.

Similarly when one re deems or sells those units, the return will be the same as that of another scheme, which has performed similarly .

Is it better to buy a new fund offer (NFO) priced at Rs10, and schemes with NAV below Rs10?

In case of a new fund offer (NFO), understand if the prod uct on offer matches your risk profile, what the mandate of the scheme is, the pedigree of the fund house, its past performance and the experience of the fund manager.Similarly it is not wise to invest in an existing mutual fund scheme just because it is available below Rs10.Evaluate if it fits into your portfolio and understand what has gone wrong for the scheme to be below Rs 10 before investing.

NAVs of direct plans are higher than that of regular plans. What should you do?

NAVs of direct plans will always be higher than that of regular plans as these schemes do not pay a commission or fee to distributors, and consequently have a lower expense ratio. Understand if direct plans are meant for you and if you can handle your investments without the support of distributors or advisors. Buying into a direct plan means you have to choose your fund yourself, understand if it fits into your portfolio, do the entire paperwork related to the transaction and monitor it on your own on a regular basis.

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