I am new to mutual fund investing and wanted to know if it is good to invest in a mutual fund with lower NAV than those with a high NAV?
Ravikumar Kulapathi, Vizag
Although buy low and sell high is a well propagated investing tenet, it does not apply when you are looking to invest between two different mutual funds. Further, the net asset value (NAV) of a mutual fund scheme is a per unit value of its net assets. Essentially, it is the total value of all its assets (less any liabilities) divided by the number of units outstanding in the scheme. For example, if the total value of all the assets of a fund is Rs 300 crore and if there are 10 million units outstanding, the NAV of the fund would be Rs 300.
You are facing the difficulty of misunderstanding how your investments in a fund work. When you invest in a fund with a low NAV, you will be allocated more units in it compared to the units allocated to you when you invest in a fund with a higher NAV. This is the reason why many investors think that it would be better to invest in a fund that has a lower NAV. However, what matters are the NAV when the units are bought and the NAV when it is sold. You should not be swayed by holding more units in a fund with lower NAVs.