Understanding the value of mutual funds

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Understanding the value of mutual funds

New Delhi, September 29 (India): NAV is Net Asset Value, which refers to the cost of a single mutual fund unit. At a specific moment, it's like a label that indicates the value of one unit of a mutual fund.

Mutual funds receive donations from individuals like us and channel them into different assets like bonds, stocks, etc. The NAV encompasses all assets owned by a mutual fund.

A common misconception is that a mutual fund with a lower NAV is cheaper and, therefore, a better investment.

This is not true. The NAV of a mutual fund is based on its assets' current value. An older fund might have a higher NAV than a newer one, but more is needed to make the newer one a better choice.

A better NAV doesn't always mean better results for the fund. Why shouldn't NAV be your go-to metric?

The HDFC Nifty 50 mutual fund has a NAV of 20 and IDFC Sensex mutual fund has a NAV of 50.

If both funds have 20% of their assets in a specific company's shares and these shares increase by 10%, the NAV of both funds will increase by 2%.

The NAV of Fund A becomes 20.4, and Fund B's becomes 51. Although it might seem like fund B's NAV rose more, the percentage growth is still the same for both.

NAV is not influenced by supply and demand.

A mutual fund's Net Asset Value does not provide information regarding the valuation of the stocks in its portfolio.

A newly established fund can invest in overvalued stocks and have a lower NAV, while an older fund may invest in undervalued stocks and have a higher NAV.

The Net Asset Value of a mutual fund does not provide information regarding the valuation of the stocks in its portfolio.

A newly established fund can invest in overvalued stocks and still have a lower NAV, while an older fund may invest in undervalued stocks and have a higher NAV.

Insighting NAV can lead to wrong decisions.

In evaluating mutual funds, it's crucial to consider more than just the NAV. Solely relying on this metric could lead to selling a fund performing well or holding onto one underperforming.

To invest in mutual funds, you should keep in mind that mutual funds are designed for long-term growth. If you only focus on short-term NAV fluctuations, you could miss significant long-term gains.

A fund manager's past performance can give you a sense of their investment strategy and how well they can navigate market ups and downs.

Although past performance is not a sign of future outcomes, historical performance can give you an idea of the fund's performance over the years.

Understanding this can assist you in determining whether the venture is right for you and your investment objectives.

Taxes paid to the fund manager are called expenses ratio. A higher expenses ratio can lower the value of your returns.

This represents the total assets of the mutual funds controlled by AUM. A larger AUM can indicate trustworthiness and stability.

Although NAV is a vital element of the mutual fund industry, it should not be the only factor to base your decision on when choosing a fund.

A comprehensive approach is necessary, considering additional metrics, and making a well-informed choice. The long-term strategy of mutual funds is crucial, and making intelligent decisions is crucial in determining whether you invest in mutual funds.