A mutual fund is a popular investment product. Thanks to sustained awareness campaigns and stellar returns in the last few years, MFs as they are popularly known have become the rage amongst investors—new and old.
However, whenever people look to buy MFs, of all the factors they need to consider—fund performance, fund manager’s performance, investment allocation, and even annualised returns; they pay a lot of attention to the mutual fund NAV rate.
While it is an important factor, some say the attention paid to it is too much. Is it?
What is it in the first place?
A mutual fund as a product invests your money into various securities which range from equities to debt funds and more. When the value of all these securities are added and liabilities are subtracted, the value you remain with is divided by the total number of securities. The result is what one calls the mutual fund’s Net Asset Value.
NAV = Assets – Liabilities/total number of units.
Unlike shares whose value changes nearly every minute, mutual fund NAV rate is updated once a day, when the market closes for the day.
Why do investors consider it important?
Take two portfolios, one is old and the other is a recent launch. Both possess identical portfolios. The older fund will have a higher NAV compared to the new fund. So investors will be able to buy more units of the new fund as compared to the old fund. And as most people believe, cheaper is better. The same logic is applied right here.
Is it Really Important?
No, it should not. If you look at today NAV rate, it will indicate a number, tomorrow, it is different. In the end, it is but a change in the asset’s value. What you should concentrate on is important factors such as:
• The fund’s performance in the last five years.
• The fund manager’s expertise.
• The portfolio.