In an NFO, the units of a scheme are priced at Rs Since the issue price is fixed at Rs 10 for the NFO subscribers, the AMC allots units to the investors based on the total amount mobilized. So, if you invested Rs 1 lakh in this an NFO, you will be allotted 10, units. So, you now know how NAV is calculated! Let us understand this further - The amount of Rs 1, crores mobilized in the NFO is invested in various securities as per the scheme mandate. The market prices of these securities change on a daily basis.
Let us also assume, the next day, the portfolio asset value of the scheme appreciates from Rs Crores to Rs Crores. For the sake of simplicity, let us ignore scheme expenses for the time being. The scheme NAV will be Rs So, when investing in mutual funds, they think that a lower NAV means a cheaper price and thus a better investment. Let us see why this is a wrong assumption.
When a company gets listed on the stock exchange, its shares become available for investors to buy. That is the stock market price of its shares. So, the stock market price is different from its book value. For mutual funds, there is no such thing as the market price of a unit. We buy mutual fund units at their book value. The NAV of a mutual fund is thus the book value of the unit.
Some distributors promote new fund offers by highlighting their low NAV. They lead investors to believe that buying a mutual fund with a low NAV means getting a good deal. A low stock price means that the stock is available at a bargain price. You cannot judge how expensive or cheap a fund is by its NAV. The NAV simply tells you the current value per unit of a mutual fund scheme.
A high NAV may only reflect the positive performance of a mutual fund scheme. It also indicates that the scheme has been around for a long time. NAV only affects the number of units you receive. A mutual fund scheme with a high NAV gives you fewer units, but the value of your investment remains the same. What matters is the performance of the mutual fund and the returns you get.
Suppose you invest in two mutual fund schemes, X and Y. You make an investment of Rs 1 lakh in both schemes. It may seem that Scheme X is cheaper because you get 10, mutual fund units, while Scheme Y gets you only 2, units. For both schemes, your investment value is Rs 1. The only difference here is that you get more units with Scheme X than with Scheme Y.
So, the NAV of a mutual fund is irrelevant when it comes to the performance of the fund. The NAV of a mutual fund is its book value. When investing in mutual funds, you should check the performance of the fund, not its NAV. You can do this by looking at the returns the fund has generated over the years.
Read more: How to choose a mutual fund scheme? We are almost at the end. Before you start investing in mutual funds, there are a few more important points to keep in mind like taxation. This can affect your total financial returns. To know about these factors, Click here. For Customer Service, dial Write to us at service.
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Covid impact to clients:- 1. Starting from February 01, , when purchasing mutual funds you will get the applicable NAV, subject only to availability and realisation of funds in the bank account of the AMC, before applicable cut-off timings for the purchase transactions.
However, you must note that inter-bank transfer delays could mean the funds reaching the AMC on the following business day. It is irrespective of the investment amounts for all mutual fund schemes. However, these regulations are not applicable to liquid and overnight funds for schemes more than Rs 2 lakh, as they already had these norms in place. You have subscription timings for liquid and overnight schemes as PM on the relevant business day.
It is 3 PM for redemption or sale of these mutual fund units. If the fund house receives the amount in their account before the cut-off timing of 3 PM on 10th February , you are allotted the closing NAV of 10th February What about the redemption of mutual fund units? A lot of investors think net asset value is similar to a stock price. This causes them to believe that a fund with a lower net asset value is cheaper and hence, a better investment.
In truth, it is not an indicator of mutual fund performance. A lower value alone does not make a fund a better investment or vice versa.
Hence, it should not be the only determining factor to choose a mutual fund. Let us look at two funds we have picked at random. Reshape Tomorrow Tomorrow is different. Let's reshape it today. Corning Gorilla Glass TougherTogether. ET India Inc.
ET Engage. ET Secure IT. Tax How to file ITR. Tax Saving. ITR Forms. Income Tax Refund. Tax Exemption Limit. Income Tax Slabs. Insure Life Insurance. Health Insurance. Motor Insurance. Other Risk Covers. Personal Finance News.
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