Literacy of investor is a must before starting investment

All investors are not always literate. Even a postgraduate in science, technology and arts may not be well versed in saving and investment. Before starting investment everyone must know where not to invest and where you must invest. Investment is a personal requirements depending on the goals of life. Beside investing in debt instrument it become imperative to invest some money in equity to beat the inflationary pressure. Befo9re jumping into share market all investors must learn to invest in equity through Mutual funds. Investment in equity is a long term requirement. No investment in equity should be done for short term. This is my sincere advice to keep away from Share market in March 2011 as a big fall is eminent. Let the fall start and stablise at lower value of Sensex and Nifty. Then investment should be done through Systematic Investment Route

We all tend to look at the returns of the mutual fund before taking a decision to invest our hard-earned money in it. The returns actually denote the appreciation/depreciation of the NAV of the fund. Unfortunately, NAV (Net Asset Value) of the fund is grossly misunderstood. Here we attempt to clear the myth surrounding NAV. More and more people have started investing in Mutual funds now a days. This is a good habit. But generally many investors make mistake by choosing low NAV product thinking that lower the the NAV greater is the return. This is a wrong perception. The NAV of a mutual fund is grossly misunderstood by the investors as well as the mutual fund distributors.The Low NAV does not indicate the fund is cheap, nor does it impact the returns in any way. So always remember this when selecting fund for investment. Rather focus on the quality of fund, which will greatly impact your returns. Always choose a fund house with long standing history of dividend and growth.Whenever a new fund is launched it cannot have past record or history of performance hence it is always better to rely on old faithfully fund who have done reasonably well over the years. Many investors subscribe to the new fund thinking low NAV is highly prized unit. It is not correct. It is to be understood that even high NAV might give better return most of the time. What is more important is to choose such a fund who have given consistent returns months after month and year after year.


The NAV or Net Asset Value is the aggregate of the market price of all the shares contained in the portfolio, inclusive of cash after deducting the liabilities divided by the sum of units issued. It can also be called as the book value of the unit of the fund.

NAV = sum of the shares in portfolio + cash - liabilities / sum of units issued .


Many people tend to think that the fund with low NAV is much cheaper than the NAV of fund with higher NAV. So people tend to think that if a fund has a NAV of Rs. 50, it is cheaper than the similar fund with the NAV of Rs. 80. This misconception stems from the fact that most people tend to equate NAV with the market price of the share. As a result, there have been instances when people have redeemed their investments in well performing funds to invest in NFOs. Even many mutual fund salesmen tend to mislead people by telling them that funds with low NAV are cheaper than those with high NAVs, thus enticing them to invest in the funds that they are selling.

There is a big difference between NAV of mutual fund and market price of the share market. In case of the share of the company, its market price is decided by the stock exchange. While deciding the price of the share, the company fundamentals, view of the company’s future performance and the demand-supply situation. Due to this, the market price of the share normally differs from its book value. But in case of a mutual fund, the concept of market value is absent. So when you purchase mutual fund units, you are buying at NAV, which is simply the book value. So it implies you are paying the correct price of the assets. This price could be Rs. 50 or Rs. 500, but the concept of higher or lower price is non-existent.


While it is commonly believed that funds with lower NAVs will yield better returns, it is not true. Suppose there are 2 funds, with NAVs of Rs. 50 and Rs. 100 respectively. You invest Rs. 1000 in both of them. So you get 20 and 10 units respectively. Assume both the funds give a return of 50% after one year. So the new NAVs of these funds become Rs. 75 and Rs. 150 respectively. Now the value of your investment in first fund becomes Rs. 1500 and that in the second fund also becomes Rs. 1500. Hence the returns in both the cases are same, irrespective of the NAV of the fund. Instead, it the quality of fund that will greatly impact your returns.

NAV of a mutual fund is grossly misunderstood by the investors as well as the mutual fund. Low NAV does not indicate the fund is cheap, nor does it impact the returns in any way. So always remember this when selecting fund for investment. Rather focus on the quality of fund, which will greatly impact your return.


The mutual fund is a good way of developing investment habits.Always mutual fund should be bought in terms of their star rating and not in the recommendation of brokers.Always depend on the recommendation of your advisers. But the best thing is to study and decide what is good for you. Always buy diversified mutual fund instead of thematic funds. Some time thematic funds give high return .The power sector once gave very high return but suddenly it might come down. The wise decision would be to rely on the value analysis of the rating agencies.The most neutral and wise agencies are Value research.com and Money control .com. Before investing study their rating and take a conscious decision. We need to keep it in mind low NAV don't provide us the scope of high return always!


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