NFOs Are Cheaper Since NAV is Rs. 10 ; Is Correct?

Several Mutual Fund (MF) investors have misconceptions about the NAV of mutual funds, about how NAV is linked to a fund’s performance and their returns.

Net Asset Value (NAV) in simple terms is the current worth of each unit of the MF.

NAV, which is calculated as assets minus liabilities of a scheme, is declared by fund houses daily. Below attempt to bust one popular NAV related myths.

Myth:

NFOs Are Cheaper Since NAV is Rs. 10

Most new fund offers (NFOs) have NAV of Rs.10.

The myth - believed to be mainly perpetrated by distributors in the past when NFO launches were rampant - is that since NAV is lower you had better buy during the NFO period than later when it shoots to Rs. 30 or Rs.  40.

However that NFOs are cheaper, is not true

.

Unlike in shares or bonds there is nothing like cheap NAV or / expensive NAV in mutual funds.

Understanding the relationship between NAV & the amount you invest would help.

If you have Rs. 10,000 to invest and the fund you have chosen has NAV of Rs.10 you get 1,000 units of the fund. If the fund performs well from there and the NAV grows say by 6 times to reach Rs. 60, in 10 years then your investment value rises to Rs. 60,000.

This would be exactly the same as investing in the fund when its NAV stood at Rs.30 and if it also grew by 6 times and reach to Rs.180 in 10 years.

The fact is any time is good to invest in a good fund when the investment is for a long term (Not less than 5  years) subject to your age, risk appetite, asset allocation etc...

 With an existing fund you have past performance to look up against which is missing in a new fund, where you might go based on trust you have on the fund house launching it.

Ultimately what counts, again, is whether the fund consistently performs well over the course of time.

Source: Quantum AMC

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