Demystifying NAV myths
The term “NAV” in mutual funds has been misunderstood by a large section of the investing community. Sanjay Matai clarifies.
The NAV of a mutual fund has not been correctly understood by a large section of the investing community.
This is quite evident from the fact that Mutual Funds had been recently collecting huge corpus in their New Fund Offers or NFOs, whereas the collections in the existing schemes were negligible. In fact, investors sold their existing investments and invested in NFOs. This switch makes no sense, unless the new fund has something different and better to offer.
Misconception about NAV
This situation arises from the perception that a fund at Rs 10 is cheaper than say Rs 15 or Rs 100. However, this perception is totally wrong and investors would be much better off once they appreciate this fact. Two funds with same portfolio are same, no matter what their NAV is. NAV is immaterial.
Why people carry this perception is because they assume that NAV of a MF is similar to the market price of an equity share. This, however, is not true.
Definition of NAV
Net Asset Value or NAV is the sum total of the market value of all the shares held in the portfolio including cash less the liabilities, divided by the total number of units outstanding. Thus, NAV of a mutual fund unit is nothing but the
#net asset value
#New Fund Offers