I am 34 years old and investing in mutual funds. I now want to invest Rs 40,000 in a new mutual fund that has a NAV of Rs 10. I want to do this because the NAV of a new fund will be cheaper than that of an existing fund.
-Sanjay
When you invest in a fund at an NAV of Rs 10, it is not true that you are buying it cheap. This is a widespread misconception.
If you invest Rs 40,000 today in a new fund, you will get 4,000 units and if you invest in a fund that has an NAV of Rs 40, then you will get 1,000 units. Let's assume that both funds invest similarly. If the investments in the first fund increase by 1.5 per cent, then the NAV will become Rs 15. The second fund's NAV with the same return will become Rs 60. In both the situations, your returns will be the same. Hence, the level of the NAV has no relevance. It should not be a criteria to choose funds for investing.
This article was originally published on February 03, 2014.
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