Should you invest in the regular plan of a fund because of its lower NAV? | Value Research Let’s understand if NAVs should matter while buying a mutual fund scheme
Big Questions

Should you invest in the regular plan of a fund because of its lower NAV?

Let's understand if NAVs should matter while buying a mutual fund scheme

Direct plans of mutual funds have higher NAVs (net asset value) than their regular counterparts. This is because direct plans have lower expense ratios due to which the investor is able to get more returns than the regular plans of funds. This eventually increases the value of assets more when compared to a regular plan. Read the difference between direct and regular mutual fund plans.

How is the NAV different for regular and direct plans?
The NAV of a fund depends on the value of the underlying holdings and the expenses charged by the fund. A direct and a regular plan of the same mutual fund scheme invest in the same portfolio of securities. The only differentiating factor between both is their expense ratios. That causes the difference in their NAVs. Understand what causes the difference in NAVs of mutual funds.

But higher NAV means lesser mutual fund units for investors. So is it sensible to go for a regular plan of a fund?
If you are looking for a one-word answer, it should be a NO. You should not invest in regular plans just because they have lower NAVs and you get a higher number of mutual fund units. In a direct route, the return percentage is higher by default (compared to the regular route) as the expenses are lower.

Should NAVs really matter to you?
A lower NAV does not mean that investors are getting a good deal. NAV is not the same as price. In fact, a higher or lower NAV should not be relevant to investors. Two mutual funds with the same portfolios (but different NAVs) will generate the same returns because (you guessed it) their underlying holdings are the same.

Only the actual returns should matter to the investors.

Conclusion
Simply because the regular plan is available at a lower NAV doesn't mean it is better. What matters is how much return it creates for you and what you get to keep.

In both the modes, you get equal returns, but in a direct plan, you get to keep more part of the returns whereas, in a regular route, an additional 1-2 per cent is charged for commission.


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