{"id":9106,"date":"2020-05-04T12:30:20","date_gmt":"2020-05-04T12:30:20","guid":{"rendered":"\/blog\/?p=9106"},"modified":"2023-06-28T10:38:00","modified_gmt":"2023-06-28T10:38:00","slug":"buying-mutual-funds-at-lower-nav-vs-higher-nav","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/moneyfy\/mutual-funds\/buying-mutual-funds-at-lower-nav-vs-higher-nav\/","title":{"rendered":"Buying Mutual Funds at Lower NAV vs. Higher NAV"},"content":{"rendered":"\n

Akash was excited. He had received a huge bonus at work, and today, he was finally going to put that bonus to good use by investing in mutual funds<\/a>. He had spent a lot of time learning about the basics of mutual funds and carefully selected a mutual fund company to invest in. However, when he finally sat down to purchase some funds, he frowned in confusion. Some funds had higher NAVs, while others had lower NAVs. Puzzled about this, he wondered, \u201cWhich one should I go for? Should I buy a fund at higher NAV or opt for one with lower NAV?\u201d\u00a0 <\/p>\n\n\n\n

Akash is not alone in this\ndilemma. Many first-time investors often find themselves at these crossroads\nbefore making their initial mutual fund purchase. If you belong to the category\nof new investors, you may first need to understand what the NAV is all about\nbefore making an investment decision. So, let\u2019s first take a closer look at\nwhat NAV is before we head on to resolve Akash\u2019s (and perhaps your) dilemma of\nbuying mutual funds at lower NAV vs. at higher NAV.<\/p>\n\n\n\n

What is <\/strong>Net Asset Value<\/strong> in a mutual fund?<\/strong><\/p>\n\n\n\n

A mutual fund consists of\nseveral units, also known as unit shares. The Net Asset Value of\neach such unit is simply its market value. In other words, it is the price at\nwhich you buy or sell the units of a mutual fund. When you invest in a mutual\nfund, you\u2019ll find that there are many assets that are managed under that fund.<\/p>\n\n\n\n

The total net assets of this\nfund will be calculated using this formula:<\/p>\n\n\n\n

Net assets = (The current market value of all the assets that the fund has invested in) \u2013 (The liabilities and expenses incurred by the fund)<\/strong><\/p>\n\n\n\n

Now that you know the net\nassets of the fund, you can easily calculate the Net Asset Value of each unit with this\nformula:<\/p>\n\n\n\n

Net Asset Value = Net assets of the fund \u00f7 (The number of units in the fund)<\/p>\n\n\n\n

To make this concept\nclearer, let\u2019s take a look at another example. Say you invest in a mutual fund\nthat has securities with a market value of Rs. 100 lakhs. If this mutual fund\nissues 10 lakh units to its investors, the NAV per unit of the fund will be Rs.\n10.<\/p>\n\n\n\n

Should you buy mutual funds at <\/strong>lower NAVs<\/strong> or at <\/strong>higher\nNAVs<\/strong>?<\/strong><\/p>\n\n\n\n

Akash knew all about NAVs.\nHe also knew that since the value of the securities in a mutual fund are\nsubject to frequent changes, the NAV of mutual funds is calculated on a daily\nbasis. The NAVs of the units in some funds may be higher than the NAVs of the\nunits in other funds.<\/p>\n\n\n\n

The question that was\nnagging him was this: Should he buy mutual funds at lower NAVs or at higher NAVs?<\/p>\n\n\n\n

Buying mutual funds at lower NAVs<\/strong><\/p>\n\n\n\n

Lower NAVs could mean any one of many things. A\nfund with a higher number of units would have lower NAVs. So, if Akash chose to buy\nmutual funds at lower NAVs, he would get more units to invest in.\nThis is one reason that many new investors believe funds with lower NAVs are the better option to invest in. However, having more units in your\nportfolio does not necessarily mean that you will enjoy higher returns down the\nline.<\/p>\n\n\n\n

Buying mutual funds at higher NAVs<\/strong><\/p>\n\n\n\n

Generally, funds that have\nbeen around for quite some time and have performed well over that period tend\nto have higher NAVs, since the net assets of the fund would\nhave increased due to good performance. If Akash opted to buy mutual funds that\nhad higher NAVs, it would put fewer units in his hand. However, this is again not\nnecessarily a bad bargain, since the returns would be similar between two funds\nwith identical portfolios, irrespective of whether the NAV is lower or higher.\nThe following example will explain this more clearly.<\/p>\n\n\n\n

Additional Read<\/strong>:- Is ELSS a Wealth Creation & Tax-Saving Tool?<\/a><\/p>\n\n\n\n

An illustrative example comparing purchase of mutual funds at lower NAVs and higher NAVs<\/strong><\/p>\n\n\n\n

Let\u2019s consider Akash\u2019s case\nto see how to resolve this dilemma. Akash had Rs. 50,000 to invest, and he had\ntwo optional schemes with identical asset portfolios available to invest in.\nHere\u2019s a closer look at these two schemes, and how Akash\u2019s investment would\ngrow in each case.<\/p>\n\n\n\n

\n Particulars<\/strong>\n <\/td>\n Scheme 1<\/strong>\n <\/td>\n Scheme 2<\/strong>\n <\/td><\/tr>
\n Initial Net Asset Value\n <\/td>\n Rs. 50\n <\/td>\n Rs. 10\n <\/td><\/tr>
\n Number of units Akash can\n purchase with Rs. 50,000\n <\/td>\n 1,000\n <\/td>\n 5,000\n <\/td><\/tr>
\n Assumed growth rate of the\n assets in the scheme\n <\/td>\n 10%\n <\/td>\n 10%\n <\/td><\/tr>
\n New Net Asset Value\n <\/td>\n Rs. 55\n (increased by 10% from Rs.\n 50)\n <\/td>\n Rs. 11\n (increased by 10% from Rs.\n 10)\n <\/td><\/tr>
\n Akash\u2019s new investment\n value\n <\/td>\n Rs. 55,000\n (Rs. 55 x 1,000 units)\n <\/td>\n Rs. 55,000\n (Rs. 11 x 5,000 units)\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

So, you see how irrespective\nof which NAV Akash chose, his investment grew by the same amount?<\/p>\n\n\n\n

Conclusion<\/strong><\/p>\n\n\n\n

Here\u2019s what Akash did instead. He factored in other vital indicators like the historical performance of the fund and the manner in which it is managed before choosing a scheme to invest in. In fact, this is exactly what experts recommend, as well. <\/p>\n\n\n\n

Additional Read<\/strong>:- Understanding Mutual Fund Terminologies<\/a><\/p>\n\n\n\n

Look at these aspects before buying a mutual fund, so you can make a more comprehensive decision. To invest in mutual funds, download the Moneyfy app<\/a> and explore the many user-friendly features it has to offer. The app allows you to practice goal-based investing in mutual funds, so you can meet various life goals in a timely manner. <\/p>\n\n\n\n

Download The App<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

Akash was excited. He had received a huge bonus at work, and today, he was finally going to put that bonus to good use by investing in mutual funds. <\/p>\n

Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":9107,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[62],"tags":[],"class_list":["post-9106","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mutual-funds"],"yoast_head":"\nBuying Mutual Funds at Higher or Lower NAV - Tata Capital Blog<\/title>\n<meta name=\"description\" content=\"Net Asset Value is an important concept related to mutual funds. Find out detailed information about whether to get mutual funds for Higher NAV or Lower NAV. 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