Does the low NAV gives better return than high NAV?

January 22, 2019
sensex

NAV (Net Asset Value) is the value of a single unit in a mutual fund. The value of a single unit is calculated by the value of all the assets minus expenses and liabilities divided by the total no.of shares.

Is Low NAV matters?

Does the low NAV gives better return than high NAV?

The answer is NO.

Let’s consider the example of two mutual funds. Mutual Fund A and Mutual Fund B. Mutual Fund A is having an NAV of Rs.500 and Mutual Fund B is having an NAV of Rs.20. Let’s say both the fund holding a stock called Reliance Industries. Assume Reliance Industries closed yesterday at Rs.1200/- . If Reliance Industries goes up by 20%, both the funds A and B will also go up by 20%. So the return will be the same. It can never be different. It does not matter if one fund is having the NAV of 500 and the other is 20. NAV is immaterial.

One more example, let’s say, there are two equity mutual funds X and Y.
NAV of X = 10
NAV of Y = 500
You have invested Rs.10,000/- in each fund on the same day. After one year, the stock market goes up by 10%.

So, investing in a Low NAV or high NAV does not make any difference in the performance of the fund. The NAV does not have any role in the returns of the fund. The return is influenced purely by the performance of the shares in the fund. NAV should not be a deciding factor on purchasing of a fund.

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