MF NAV

Learn how net asset value (NAV) works and find out whether a low NAV is a good thing or not

Mutual fund investors inevitably come across the term 'NAV'. No matter how hard they try to stay away from investment jargon, this one term refuses to leave them. Every time they buy or sell mutual fund units, they come across this beast called NAV. Little wonder, there are many misconceptions regarding this term. Here we tell you all you need to know about NAV as a mutual fund investor.

The NAV formula
NAV, or net asset value, is the sum total of the market value of all the shares held in a portfolio, including cash, less liabilities, divided by the total number of units outstanding. Thus, the NAV of a mutual fund unit is nothing but the 'book value' of a unit.

Is a low NAV good?
Many investors feel that a fund with a low NAV is 'cheaper' than the one with a higher NAV. At the time of a new fund offer, many distributors push the new fund by saying that its NAV is low, thus indicating that it's available at a bargain. The truth is that NAV itself is immaterial for an investor.

The idea that a low-NAV fund is cheaper stems from the fact that many investors compare NAV with the stock price. A low stock price (when seen in terms of valuation) means a stock available at a bargain. But this is not true for a fund's NAV. NAV doesn't tell you whether a fund is cheap or expensive. It just reflects the current value of one unit of the portfolio as it is.

An example
The following example will make it clear that returns are independent of NAV. Say, you have Rs 10,000 to invest. You have two options. You can invest in either of the two funds, Fund X and Fund Y, whose portfolios are the same but whose NAVs are different. Fund X has an NAV of Rs 10 and Fund Y has an NAV of Rs 50. You will get 1,000 units of Fund X or 200 units of Fund Y for Rs 10,000. After one year, both funds will have grown equally as their portfolios are the same.

Let's assume that the funds grew by 25 per cent. Then the NAVs after one year will be Rs 12.50 for Fund X and Rs 62.50 for Fund Y. The value of your investment will be 1,000*12.50 = Rs 12,500 for Fund X and 200*62.5 = Rs 12,500 for Fund Y. Thus, your returns will be the same, irrespective of the NAV.

When we buy a mutual fund at its NAV, we are buying it at its book value. And since we are buying it at its book value, we are paying the right price for its assets, whether it is Rs 10 or Rs 100. What you want to buy in a scheme is its performance, not its NAV. And the simplest way to do this is to compare returns over similar periods.

Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds. Save Tax Get Rich

Top 10 Tax Saver Mutual Funds for 2018

Best 10 ELSS Mutual Funds to Invest in India for 2018

1. DSP BlackRock Tax Saver Fund

2. Tata India Tax Savings Fund 

3. Birla Sun Life Tax Relief 96

4. ICICI Prudential Long Term Equity Fund

5. Invesco India Tax Plan

6. Franklin India TaxShield 

7. Reliance Tax Saver (ELSS) Fund

8. BNP Paribas Long Term Equity Fund

9. Axis Tax Saver Fund

10. Sundaram Diversified Equity Fund

Invest in Best Performing 2018 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms

For further information contact SaveTaxGetRich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300