Why is the NAV of different index funds tracking the same index different? Should it not be the same since their composition is the same?
- Ashok Kumar Bhatnagar
It is the same as asking why funds with NAV Rs 10 and Rs 100 are different. The simple answer to it is that different funds started at different times.
For example, consider a Sensex-based fund that started in the year 2000 with an NAV of Rs 10 and another Sensex fund that started last year, also with the NAV of Rs 10. The one which started in the year 2000 would have appreciated in line with the returns of Sensex since then. Thus, it could be several times its original value depending on how Sensex performed during the period. In contrast, the one which started last year would have risen by a much lesser magnitude.
So the thing to note is that the absolute value of the NAV of an index fund doesn't matter. You need to consider that the NAV of the fund after you have invested will change in percentage terms exactly as the percentage change in the index. For example, if Sensex goes up by 10 per cent in the next six months, your money should be going up by about 10 per cent in any of the funds that track the Sensex, irrespective of the fund's NAV, whether it is Rs 10, Rs 50 or Rs 100.
This article was originally published on November 24, 2021.
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