One main skill of mutual fund distributors is to hallucinate people and making them believe the misconception of low Net Asset Value (NAV) has a bargain-basement price. Their target merchandise will also be the same. The cost-cutting technique will be the illusion door behind this act to attract to lure the investors to give their attention towards the new asset funds.
But, the practicality of investment is very much important, and in that the calculation of NAV is a futile concept. For instance, there is a separate NAV with the same portfolios. The first one is newly launched whereas the other is surviving in the market. The NAV will eventually increase if there is a substantial increase in the portfolio which will be beneficial to the investors on both sides.
When the above concept is mathematically seen, the investors will get a clear idea. For example, two funds with Rs. 10 and Rs. 50 are invested and have a return of Rs. 11 and Rs. 55 which shows the 10% hike in the returns irrespective of the NAV.
There will be a difference in the number of units when it comes to the level of investment. A fund with a high NAV will have lower units and a lesser NAV will have more units. Let’s take an amount of Rs. 1000 whereas the investor will invest in 100 units with a NAV of Rs. 10 and also will invest in 10 units in case the NAV is Rs. 100. In the end, both are of the same nature of the investment.
The NAV is irrelevant when the investment is based on the cost management perspective. The investors must focus on the performance of the scheme and not on the Net Asset Value of the scheme.
The differential aspect in the higher NAV will affect the dividends. This is due to the reason that higher NAV will have smaller units so that dividends will be fixed based on the lower units which will have lower returns. But, the marginal returns will be the same. Therefore, NAV seems to be an unacceptable reason from all the sides of judging a mutual fund. The mutual funds are subjected to their performance in the market which can be analyzed and equated by looking into the periodical returns from time to time.
The mutual are considered and are treated as shares, which created a jumbled purview over the concept of investment in mutual funds. But the fact is that stock market price varies from the actual price of procurement whereas the actual value of the mutual fund remains the same throughout the portfolio.
Hence, if the investors are determined to invest, they need to look at the performance of the portfolio and its returns. Stocks only reflects the returns and not the NAV.