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NAV & Market Cap Insight

While investing, the latter can be looked at, but returns are paramount

What is the difference between the Net Asset Value (NAV) of a fund and market capitalization? Are they important while deciding which fund to buy?

- Kiran Nayak

The NAV of a fund merely reflects the market value of securities represented by a single unit. It is the total assets managed by the scheme divided by the number of units subscribed to it.

On the other hand, the market capitalization is the sum of weighted market capitalization of the stocks that a fund holds. For example, if two stocks, X and Y compose 30 per cent and 70 per cent of a fund’s assets and their market capitalization are Rs 200 crore and Rs 500 crore respectively, the market capitalization of the fund will be Rs 410 crore.

While choosing between two funds, a higher or lower NAV is immaterial as the value of investment in any case will be the same. It is the fund’s returns that should govern investing decisions. But a fund’s market capitalization can tell about the size of companies that it has invested into. The larger the cap, the more it will be holding onto bigger companies. This can be used for ready comparison to find if a fund is a large-cap or mid- or small-cap.

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