#BQMutualFundShow: Value And Price Are Not The Same

As in stocks, so in funds, don't get lured by a low price or low net asset value (NAV), in case of a fund. Your returns are independent of the NAV.

The Mutual Fund Show, this week, tried to dispel the notion that a fund with a higher NAV would end up giving lower returns. That notion is false. It is wrong to make that assumption, even more so in the case of mutual funds.

There are numerous examples of how mutual fund schemes with higher NAVs have given very good returns, and comfortably beaten their benchmarks.

This data clearly shows that there is no correlation between the returns that a fund gets and the NAV. A higher NAV fund could well deliver significant returns and a lower NAV fund could well remain around the same levels. The two funds mentioned above have not only beaten their benchmarks, but a high NAV 10 years ago has only kept on rising. Choose a fund only on the merit of the fund and not depending on the NAV.

Now that we have established that an investor should not get swayed by the NAV of a fund but should look at the merits of the fund, and the fund manager managing the fund, it is time to tell readers one more important thing.

Subscribing to a mutual fund for Rs 10 doesn't mean that you have bought into it cheap.

This is what investors have done for years together, and continue to do. A relative from Vadodara recently invested in an NFO, at a princely sum of Rs 10 lakh because it was an NFO and he was getting the units at Rs 10. This is a serious error in judgement. Sunil Subramanium of Sundaram Mutual as well as Harshvardhan Roongta of Roongta Securities categorically stated this on the show and emphasised again the point about not opting for NFOs just because the price of the unit is appealing.

Some NFOs are very good, but not all are of great quality. Instead of acting like my relative and parking a large sum in one NFO, invest a small sum with advice from a financial advisor, who can tell you which fund to buy.

The best financial advisors get featured on BloombergQuint's Mutual Fund Show every Wednesday at 12.30 pm. Thanks for tuning in.

Niraj Shah is Markets Editor at BloombergQuint.