Does NAV of a Scheme Matter?


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 assets 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 remains 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 allotted. In both the case, the value of your investment, would be identical. Going ahead, the stocks present in a portfolio and their subsequent movement determine returns from a fund, making the value of the NAV immaterial. Similarly when one redeems 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 Rs.10, and schemes with NAV below Rs.10?

In case of a NFO, understand if the product 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 Rs.10. 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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