Monday, 18 September 2017

Elucidate NAV myths

The NAV of mutual fund has not been correctly understood by a large section of the investing community. And this can be easily seen from the fact that Mutual Funds had been recently collecting huge entity in their New Fund Offers or NFOs whereas the collection in the present schemes was minute. In fact, investors sold their present investments and invested in NFOs. This switch makes no sense unless the new fund has something different and offers you something new.
Meaning about NAV
Net Asset Value or NAV is the sum total of the market value of all the shares which are contained in the portfolio including cashless the liabilities, divided by the total number of units outstanding.
Misapprehension about NAV
This situation arises from the perception that a fund at Rs10 is a cheaper than say Rs 15 or Rs 100. However, this perception is absolutely wrong and investors would be much better off once they appreciate this fact. Two funds with the same portfolio are same no matter what their NAV is all about. NAV is immaterial. People carry this perception because they assume that NAV of an MF is similar to the market price of an equity share, which is completely false.

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