MUTUAL FUNDS: HIGH NAV VS LOW NAV
Whenever any individual want to buy mutual fund units, there is a question in the mind of a buyer.
Should I purchase a Mutual Fund with High Net Asset Value (NAV) or Should I Purchase a Mutual Fund with Low Net Asset Value (NAV)
But what is NAV and why it is so important, when it comes to mutual Fund?
Exit Load= Chargeable as a percentage of the NAV
For instance: if any individual investing Rs. 10000/- in a scheme with a Net Asset Value of Rs.200/-. That Individual will receive 50 units i.e. (10000/200)
Mathematical Representation of Net Asset Value is
NAV (Net Asset Value) = (Assets – Debts) / (Number of Outstanding units)
Asset = Liquid Cash and Securities (include both Debt and Equity instruments)
Debt = Money owned for outstanding liabilities and expenses
Let’s assume an individual who wants to invest have 2 options
1. One mutual fund with an NAV of rupees 10
2. One mutual fund with an NAV of rupees 100
Just because the net asset value is lower doesn’t mean buying into the fund is cheaper or better
Let’s say an Individual have 10,000/- to invest in each mutual fund, a 10% investment in a company that itself goes up by 5% would result in both funds NAV 10 and NAV 50 by 10.5% therefore 10,000 invested in both these mutual fund will become 11,050/-
One reason why NAV schemes is high is because it was launched many months or years back. A scheme that has been around for years would have bought and sold shares for many companies till date and hence its NAV has risen , while a new scheme just launched recently and hence its NAV would be Rs.10 or close to Rs.10 which is less.
So, what’s the verdict the actual NAV of the mutual fund scheme doesn’t matter the quality of the fund and the returns an individual get are would matter.
But what about high performing mutual funds….are they best mutual funds?
Let’s take an example of Test Cricket.
I will consider 2 international players one is Chateswar Pujara and the second one is Rohit Sharma. Both are the best player. However, on whom we rely the most?
Is it Pujara or Sharmaji ka beta?
Definitely on The NEW WALL Pujara because of his consistency but not on high sixes or fours of Sharma, but if we look at the cricketing career of both the batsman the average is high for Chateswar Pujara , However, strike rate is high for Rohit Sharma.
Never Chase the high performing funds. Along with high Returns, how the fund generated that much high return is also important.
Consistency is the key rather than high performance.
Fund Type: Open Ended
Period: 5 years