NAV not indicator of performance
The performance of any scheme of a mutual fund is denoted by
its net asset value (NAV). The NAV is a yardstick used to sum up the
performance of a mutual fund.
This measure is a key performance indicator for any mutual fund. It is the market value of securities held under the scheme.
Mutual funds invest the money collected from investors in the capital markets. Since market values of securities change every day, the NAV of a scheme also varies on a day-to-day basis. The NAV per unit is the market value of securities of the scheme divided by the total number of units of the scheme on any particular day.
For example, if the market value of securities of a mutual fund scheme is Rs 3 crores and the mutual fund has issued 10 lakh units at Rs 10 each to investors, the NAV per unit of the fund is Rs 30.
Mutual funds are required to disclose their NAVs on a regular basis - daily or weekly - depending on the type of scheme.
This measure is a key performance indicator for any mutual fund. It is the market value of securities held under the scheme.
Mutual funds invest the money collected from investors in the capital markets. Since market values of securities change every day, the NAV of a scheme also varies on a day-to-day basis. The NAV per unit is the market value of securities of the scheme divided by the total number of units of the scheme on any particular day.
For example, if the market value of securities of a mutual fund scheme is Rs 3 crores and the mutual fund has issued 10 lakh units at Rs 10 each to investors, the NAV per unit of the fund is Rs 30.
Mutual funds are required to disclose their NAVs on a regular basis - daily or weekly - depending on the type of scheme.
Investors should choose scheme based on merits
The NAV is one of the main parameters used by investors
while taking an investment decision on investing in a mutual fund. Some
investors prefer a scheme that is available at a lower NAV compared to
the one available at a higher NAV.
Many prefer a new scheme which is issuing units at Rs 10, while existing schemes in the same category may be available at much higher NAVs. In reality, in case of mutual funds schemes, lower or higher NAVs of similar schemes of different mutual funds don't have much relevance.
As against the NAV, investors should choose a scheme based on its merits considering its performance track record, dividend history , scrips in the portfolio, service standards, fund manager's track record, professional management etc.
Many prefer a new scheme which is issuing units at Rs 10, while existing schemes in the same category may be available at much higher NAVs. In reality, in case of mutual funds schemes, lower or higher NAVs of similar schemes of different mutual funds don't have much relevance.
As against the NAV, investors should choose a scheme based on its merits considering its performance track record, dividend history , scrips in the portfolio, service standards, fund manager's track record, professional management etc.
For example, assume a scheme is available
at a NAV of Rs 10 and another scheme is available at Rs 100.
Assume both schemes are diversified equity-oriented schemes. Assume an investor has put Rs 10,000 in each of the two schemes. He would get 1,000 units (10,000 divided by 10) in the first scheme and 100 units (10,000 divided by 100) in the second scheme.
Assume the markets go up by 20 per cent and both the schemes perform equally well, and it is reflected in their NAVs. The NAV of the first scheme will go up to Rs 12 and that of the second scheme will go to Rs 120.
Assume both schemes are diversified equity-oriented schemes. Assume an investor has put Rs 10,000 in each of the two schemes. He would get 1,000 units (10,000 divided by 10) in the first scheme and 100 units (10,000 divided by 100) in the second scheme.
Assume the markets go up by 20 per cent and both the schemes perform equally well, and it is reflected in their NAVs. The NAV of the first scheme will go up to Rs 12 and that of the second scheme will go to Rs 120.
NAV, units should not guide decision
Thus, the market value of the investments will be Rs 12,000
(1,000 multiplied by 12) in the first scheme and the same amount in the
second scheme too (100 divided by 120).
The investor will get the same return of 20 per cent on his investments in both the schemes. Thus, lower or higher NAV of a scheme and allotment of higher or lower number of units within the amount an investor is willing to invest, should not be the main factors guiding the investment decision of the investor.
It is quite possible that a better-managed scheme with a higher NAV gives higher returns compared to a scheme which is available at a lower NAV but is not managed efficiently. Efficiently - managed schemes at higher NAVs may not fall as much as inefficiently-managed schemes with lower NAVs.
Therefore, investors should give more weight-age to professional management than lower NAVs of any scheme.
An investor may get more units at a lower NAV, but the scheme may not give higher returns if it is not managed efficiently in the long run.
The investor will get the same return of 20 per cent on his investments in both the schemes. Thus, lower or higher NAV of a scheme and allotment of higher or lower number of units within the amount an investor is willing to invest, should not be the main factors guiding the investment decision of the investor.
It is quite possible that a better-managed scheme with a higher NAV gives higher returns compared to a scheme which is available at a lower NAV but is not managed efficiently. Efficiently - managed schemes at higher NAVs may not fall as much as inefficiently-managed schemes with lower NAVs.
Therefore, investors should give more weight-age to professional management than lower NAVs of any scheme.
An investor may get more units at a lower NAV, but the scheme may not give higher returns if it is not managed efficiently in the long run.
