The common myths about Mutual fund NAV
Many investors, especially new investors, choose mutual funds with lower NAV
An investor should know that anytime is good for investing in a mutual fund
Mutual funds have emerged as the most preferred investment options in India over the years for people with varied incomes, different financial goals, and risk appetites. Investors are interested in investing in mutual funds because of the advantages that it offers, like professional fund management, liquidity, tax benefits, and diversification. At the same time, some myths are also associated with this investment option, which may lead an investor to make the wrong investment decision. Many investors think both mutual fund NAV and share prices are the same, and many myths associated when it comes to investing in mutual funds. Let’s check the common myths associated with mutual fund NAV for making better investment decisions.
A mutual fund with low NAV is better to invest
Many investors, especially new investors, choose mutual funds with lower NAV with the misconception that it helps them to earn higher returns. NAV represents the net asset value of each unit of a mutual fund, and this value may decrease or increase based on the performance of your fund investments. The future returns of the fund that you have chosen for investing determine irrespective of its NAV.
Usually, older mutual fund schemes have higher NAVs, while newer ones have lower NAVs. As an investor, you must know that a mutual fund with a NAV of Rs.10 may give returns the same as that of a fund with a NAV of Rs.100. The performance of your fund does not depend on its net asset value, but its investment. The Net Asset Value of a fund will rise if it has been in the market for a long time. Each investor must consider the past performance, market conditions, investment theme, and fund manager instead of its NAV value to get better returns.
Cheap NAV value makes new fund schemes also cheap
Many new mutual fund offers (NFOs) have the net asset value (NAV) of Rs. 10, and it does not mean that such funds are cheaper. Mutual funds are quite different from shares and bonds and nothing like costly NAV or cheap NAV. However, understanding the meaning and relationship of NAV in mutual funds can make you a better investor. The NAV value of your investment increases if your fund performs well. An investor should know that anytime is good for investing in a mutual fund, especially if he or she intends for a long-term investment plan. Check the past performance if you opt for an existing fund while you can invest in a new fund only based on trust.
Opt for a scheme that declares big or regular dividends to reap higher returns
As per the regulations by SEBI, dividends can be paid to investors only from the profits made by the mutual fund scheme, and the dividends of a fund are adjusted from its NAV value. If a mutual fund scheme has the NAV of Rs.30, it will be reduced to Rs.25 after declaring a dividend of Rs.5. Usually, fund managers declare dividends at their own discretion. Many people think dividends are extra income from MF investment, but it is generated from the investment of the investor. The NAV of the fund gets reduced by the dividend received. Instead of opting for a scheme that offers a large dividend, choose a plan that enables the growth of the fund.
Mutual fund Investors book their profits when the share prices go up
Every mutual fund investor should know that the mutual funds and shares are different before investing in it. You can own a portfolio of stocks, bonds, and other assets in mutual funds. The stocks to buy or sell for investing using the money pooled from different investors are done by fund managers or research analysts. Those investors who are unaware of the mutual fund market may consider booking their profits when the prices of their shares go up and retain the funds that are poorly performed. The NAV value of your fund is not analytical for relative valuations. Instead of booking profits, you can think of asset allocation to reap higher returns in the long-term.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh