Why NAV doesn’t matter: What really drives mutual fund performance

When choosing a mutual fund, many investors wonder whether: “Should I pick a fund with a lower NAV (Net Asset Value) for better returns?” This is a common question, often fueled by the belief that a lower NAV means a fund is “cheaper” or has more growth potential. But is this really true? Let’s break down the facts and highlight what truly matters, and see how you can take “Nivesh ka Sahi Kadam” based on the right parameters.

What is NAV and why does it matter?

NAV is simply the per-unit price of a mutual fund, calculated as:

NAV = Total outstanding units/(Total assets – total liabilities)

It reflects the current market value of one unit of the fund. NAV changes daily based on the value of the underlying assets, but it is not an indicator of a fund’s quality, growth potential, or expected returns.

The Truth: NAV has NO impact on returns

Whether a fund’s NAV is ₹10 or ₹100, your investment outcome depends on the fund’s percentage return, not the absolute NAV. If you invest ₹10,000 in a fund with a NAV of ₹10, you’ll get 1,000 units. The same amount in a fund with a NAV of ₹100 gives you 100 units. If both funds grow by 10%, your investment in each grows to ₹11,000-regardless of the starting NAV.

What should you look for instead?

• Fund Performance: Analyze long-term returns, especially over 5- and 10-year periods, to see how the fund has performed across market cycles.
• Portfolio Quality: Look at the underlying assets and sectors the fund invests in. A strong, diversified portfolio is key to stability and growth.
• Fund Manager’s Track Record: The expertise and strategy of the fund manager play a critical role in delivering consistent returns.
• Investment Strategy: Ensure the fund’s strategy aligns with your risk appetite and financial goals.

SIPs and NAV: A winning combination

Systematic Investment Plans (SIPs) allow you to invest regularly, buying more units when NAV is low and fewer when NAV is high. Over time, this averages out your purchase cost and reduces the impact of market volatility-a strategy known as rupee cost averaging.

Nivesh ka sahi kadam: Go beyond NAV

Making “Nivesh ka Sahi Kadam” means looking past the NAV and focusing on what truly drives returns. Mutual Funds Sahi Hai when you choose them based on performance, portfolio strength, and management quality-not just a low or high NAV.

Watch this video where Subbu explains how the real focus should be on the fund’s portfolio, management quality, and historical performance – not just its NAV.

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Disclaimer: Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Past performance is not indicative of future results.