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Summary: A low NAV looks cheap. It isn't, and it never was. This piece breaks down why a fund's NAV has nothing to do with what you'll earn from it, why Rs 10 NFOs are priced that way on purpose and why anyone pitching you a fund on its low NAV is a red flag, not a bargain.
About five or six years ago, a neighbour asked me for some help with his mutual fund investments. I went over his portfolio and saw that one mid-cap fund looked a bit dubious. Instead of handing him the name of an alternative, I encouraged him to use Value Research Online and find one himself.
A few days later, he told me that he had decided that the best alternative to that mid-cap fund was a liquid fund. When I asked how he had come to this conclusion, he told me the liquid fund was rated five-star by Value Research, and the NAVs of the two were almost identical: one was Rs 37 and the other Rs 35.
For those who understand mutual funds, this is an absurd idea, but it seemed natural to him. Note, I am not mocking him. He is a successful businessman who started from scratch and found success in just 15-20 years. He understands money well, in the way that an entrepreneur does. That's what made the episode stick in my mind. If someone like him could arrive at this, then the mistake is not a matter of intelligence. It is a matter of vocabulary.
The price problem
In fact, the blame lies with how all of us familiar with funds talk about NAV (net asset value). We refer to it as the 'price' of a fund, which you pay to 'buy' fund units. If you wanted to buy a car priced at Rs 5 lakh and were told to find an alternative, you would start looking for other cars which cost around Rs 5 lakh. If NAVs are loosely referred to as the price of a fund, people will bring their mental model of what the word means to mutual funds as well. You can't blame them.
The problem is greater with new fund offers (NFOs), which are priced at Rs 10. There is no accounting or regulatory reason for this. A fund could as well start at Rs 100 or Rs 1,000. When a fund is launched at Rs 10 and established funds in that category are at Rs 80 or Rs 300 or whatever, the car-showroom mental model gets applied in the minds of investors. The new fund looks cheap. The old fund looks expensive. Neither is true.
NAV is not the price of a fund; anyone selling funds on low NAVs may be misleading you.
The simple maths
It's easy to demolish this. Say, there are two funds with identical portfolios, one with an NAV of Rs 10 and the other Rs 500. You invest Rs 5,000 in both; you have 500 units of the first and 10 units of the second. Now the market rises and both portfolios gain 10 per cent. Your Rs 5,000 becomes Rs 5,500 in both. The only thing that matters is the portfolio, meaning the fund manager's skill and competence. The NAV is irrelevant.
The NFO illusion
Five years ago I said the fault lay with how the industry, salesmen and experts talk about NAV, rather than with investors. Today I would pass harsher judgement. This Rs 10 NFO problem is a misunderstanding that is useful to mutual funds and salespeople. They know what the Rs 10 'price' does to the thinking of investors, so it won't change. Look at when NFOs get launched. They cluster after markets have run up, when investors walk in. That is not a coincidence. A Rs 10 unit sold to someone who has never owned a fund is the easiest sale in this business.
There are some exceptions. A few years back, when Indian investors were first presented with the opportunity to invest abroad, all the options were new funds. They were investing in a market which had proven credentials. They were investing through a fund of funds, and the underlying funds had a history. There could still be cases like that. But the test is the same: Is there something in the portfolio that you cannot get from an existing fund? If the answer is no, then Rs 10 is the only thing being sold.
The red flag
The basic idea is wrong. Low or high NAV is irrelevant as a characteristic on which to base the decision to invest in a fund. In fact, this idea is so thoroughly wrong that it can serve as a good indicator for detecting a fund salesperson or 'advisor' who deliberately misguides you. So remember this: anyone asking you to choose a fund because it has a low NAV is misguiding you, and you should stop dealing with that person or outfit.
There are no exceptions to this rule.
This article was originally published in Mint on September 6, 2026
Also read: Low NAV doesn't mean a cheaper fund
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