Does a lower NAV signal better returns? Unveiling mutual fund secrets

While you are looking at various investment options such as NFTs, cryptocurrency, stocks, and more, investing in mutual funds is the most popular and safest option if you want to make profits through returns. Do you also believe that NAV is a crucial factor in determining investment returns? If so, why? In this article, we will first understand “what is NAV”, and then look at whether or not mutual funds with lower NAVs give better returns.

• It is important for you as an investor to be aware of any and all misinformation about mutual funds.
• Mutual funds are the most popular and safest option if you are looking to invest and make profits via returns.
• The NAV of a mutual fund does not determine how a fund would perform in the future.

Mutual fund schemes allow you to diversify your portfolio, while effectively mitigating risks. Not only do mutual funds come with expert guidance and professional management, but are aso liquid and remain highly affordable.

All you have to do as an investor is choose the right investment, calculate some of the risks associated, and start investing right away! You can now enjoy earning high returns.

To put it simply, the Net Asset Value of a mutual fund is the distinction between the fund’s total number of assets (such as its shares, bonds, equities, etc.) and the liabilities (such as the distribution and marketing costs, the management fees to be paid to the professional managers and experts), divided by the number of units that are held by all the investors.

The distinction between the total number of assets and the liabilities divided by the number of units held by investors would give you the NAV per share of the said mutual fund. The NAV changes everyday because unlike stocks or any other direct investment option, the underlying assets here are traded daily, and therefore, there is fluctuation of their value during the market hours. NAVs are therefore calculated post market hours for determining the final value at the day’s end.

Furthermore, NAVs are not simply isolated in the case of mutual funds. Theoretically speaking, even your company may calculate its Net Asset Value as long as you deal with the factors of assets and liabilities.

There is a lot of misinformation surrounding NAVs and mutual funds - the most common one being that a mutual fund with a lower NAV would provide further scope for growth in the years to come.

To help you understand how things really work, let us look at an example.

Suppose you are an investor and buy 200 shares at a Net Asset Value of Rs. 50, and the stock market sees a surge by 10%. You would now see that the Net Asset Value is Rs. 55.

The total investment value, therefore, would be 55*200, which is Rs. 11,000.

Now, let us look at an alternative instance.

You buy 100 shares at a Net Asset Value of Rs. 100, and the stock market sees a surge by 10% again.

In that case, the new Net Asset Value would be Rs. 110.

The total investment value now would be 110*100, which gives you Rs. 11,000.

In both the instances, the total investment value is the same. Therefore, as you can see, NAV does not decide how a fund would be performing in the future.

The NAV of a mutual fund could be low due to various reasons. It could be that the fund is young, or has performed badly in the past, or because it is not as popular or widely known. Similarly, good performance of a fund cannot be guaranteed by a higher NAV. The mutual fund could have been around for a longer time, it may have performed very well in the past, or could be popular. The NAV of a mutual fund is never the factor that decides how the fund would be performing in the future.

The returns that you could earn by investing in a mutual fund is not determined by the fund’s NAV. Instead, you as an investor should focus on analysing the market and take calculated risks while being aware of how to keep up with the market flow. Remember that consulting a financial advisor could always help in making more informed decisions.

Additionally, you may use the mutual fund calculator on the Bajaj Finserv Mutual Fund Platform to compare mutual funds and choose what is best for you. There are more than 1,000 mutual funds that the platform has to offer.