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What is NAV Should you invest in high or low valued Nav mutual funds
05 Jan 2023

Mutual funds have been one of the most popular investing options in India for many years. However, although NAV is a useful indicator when investing, it does not predict how the investment will perform.

The fund's NAV is the price at which you may purchase or sell mutual fund units. It is basically the Mutual Fund's pricing per unit. So, in order to make a smart investment selection, should the NAV be high or low? What do you think should be your choice? Once you grasp the finer points of NAV as an investor, you will be able to make a better educated choice regarding your investment.

What is Net Asset Value (NAV) and how does it work?

The NAV of a mutual fund is calculated by dividing the total assets minus the total liabilities of the fund by the total number of issued units. To comprehend how NAV is computed, you must first comprehend a Mutual Fund's investment portfolio as well as the charges that a fund incurs for its administration.

  • Total Assets - A Mutual Fund's collected fund corpus is invested in a collection of assets based on the Fund's goals in order to generate profits. Total Assets refers to all of these assets, which include stocks, gold, bonds, debt instruments, and more. The profit created by these assets in the form of dividends, interest, capital gains, and so on is included in total assets.
  • Total Liabilities - Total Liabilities refers to the charges that an Asset Management Company (AMC) incurs in order to operate a fund. Management Fees, Marketing Expenses, Distribution Expenses, and other expenses are generally included in Total Liabilities.
  • Total Units - The Total Units of the Fund are the aggregate of all the units owned by all the Mutual Fund investors in a scheme.

As a result, NAV = (Total Assets – Total Liabilities) / Units

It's worth noting that a fund's NAV isn't always the same. It is possible that it will vary on a daily basis. This is due to the fact that the whole underlying assets in which the fund invests are exchanged on a daily basis, and the value of the fund may vary depending on the exchanges during market hours. As a result, the NAV of a fund is determined after market hours as a rule. A higher NAV indicates a profit, whereas a lower NAV indicates a loss for the fund on that given day.

Is a Mutual Fund's NAV tied to its performance?

The NAV of a fund is just the price of a Mutual Fund unit. It has nothing to do with a fund's performance. The NAV of a fund is similar to the stock price of a corporation. It just serves as a day-to-day indication of a unit's price. It does not reflect the performance of the firm or the fund.

Dispelling Common NAV Myths

Many people feel that a higher NAV will result in higher returns. A higher NAV, on the other hand, does not always imply a better performing Mutual Fund. It might indicate that the fund has been operating for a longer period of time or that the fund has previously performed well. However, it has no bearing on how the fund will perform in the future.

Similarly, some investors feel that investing in a fund with a lower NAV is the best option. The widespread consensus is that since the NAV is smaller, it has more room for future development. This is wrong as well. If the fund isn't too old, it may have a low NAV. Another cause might be the market's bad performance in the past. However, it has no bearing on the fund's future performance.

Wrapping Up

You should not make the mistake of evaluating a Mutual Fund investment only on the basis of its NAV. A comparison of two Mutual Funds based on their NAV to determine which is best for your money is pointless. It's merely a widespread misconception that most investors assume to be true. A high or low NAV tells nothing about your investment's prospects. Instead, you should go here to learn how to choose the finest Mutual Fund for your investment.

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How to analyse Mutual funds for big returnsMutual Funds are more than just Subject to market risks | How to analyse Mutual funds for big returns

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