Many investors believe that a mutual fund with a low NAV is cheaper and has more growth potential, while a high NAV fund is already “expensive.” But in reality, NAV alone does not decide whether a mutual fund is good or bad.
This article breaks down one of the biggest misconceptions in investing by explaining how NAV actually works, why fund performance matters more than price, and what investors should truly focus on before investing.
It also covers important concepts like returns, fund quality, risk, and long-term investing rules in very simple language, helping beginners make smarter and more confident investment decisions.
1. High NAV vs. Low NAV Funds: Which is Better?
A very common misconception among investors is that a fund with a lower NAV (e.g., ₹10 or ₹12) is “cheaper” or better than a fund with a higher NAV (e.g., ₹1,000) because they get more units.
However, the article clarifies that a higher NAV often indicates a well-managed fund with a strong track record. All equity mutual funds start with a base NAV of ₹10. Over 15 to 20 years, a fund manager who invests wisely in growing companies will drive that NAV up significantly (e.g., growing from ₹10 to ₹160 or even over ₹2,000). Therefore, a high NAV simply reflects the growth and compounding achieved by the fund manager’s choices over time, not that the fund is “expensive”.
2. Checking Fund History and Metrics
Using SBI Small Cap Fund as an example, the article highlights important metrics investors should review before investing:
- CAGR / Returns: The fund shown delivered an annualized return of 19.48% since its inception.
- Expense Ratio: This is the fee charged by the AMC to manage the fund. For the highlighted fund, it was 1.83%.
- Performance vs. Benchmark: Investors should always compare a fund’s return against its benchmark index (e.g., Nifty Smallcap 250) to ensure the fund is consistently beating the market average across 1, 3, 5, and 10-year windows.
- Portfolio Diversification: To minimize risk, a mutual fund spreads its capital across dozens of stocks (often 60–70 companies). Your money only completely vanishes if all those underlying companies fail simultaneously.
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3. The Power of Long-Term SIPs (Tata Ethical Fund)
The video presents a case study of a ₹1,000 monthly Systematic Investment Plan (SIP) in the Tata Ethical Fund starting from 1996. Over the long term, a total principal investment of just ₹3.19 Lakhs grew into an accumulated wealth of approximately ₹45.93 Lakhs, delivering an annualized return of roughly 16.65%. This demonstrates how compounding builds substantial wealth over a multi-decade horizon.
4. Important Investor FAQs Answered
The speaker clarifies common operational doubts raised by investors:
- Stopping and Restarting an SIP: If you stop your SIP, withdraw (redeem) all your money after 6 months, and then decide to restart your investment later, your timeline starts fresh from zero. It is compared to buying gold coins: if you buy coins for 6 months and then sell them all, you no longer hold any assets from that period; any new coin you buy next month is a brand new start.
- NAV Applicability (Cut-off Timings):
- If you invest before 3:00 PM, you will get the NAV calculated based on the closing market prices of that exact same evening (disclosed around 9:00 PM).
- If you invest after 3:00 PM, you will get the NAV of the next business day.
- You can never get “yesterday’s” NAV.
- Specifying the Exact Scheme Name: When evaluating a fund, merely naming the fund house (e.g., “Is ICICI Prudential a good fund?”) is insufficient. An investor must specify the exact scheme category—such as Small Cap, Mid Cap, Technology, or Value Discovery—because every category carries different risks and strategies.
The Final Thought
The biggest mistake many mutual fund investors make is judging a fund only by its NAV instead of understanding how mutual funds actually create wealth. A low NAV does not mean a fund is cheap, and a high NAV does not mean it is expensive.
What truly matters is how well the fund performs over time, how strong its portfolio is, how experienced the fund manager is, and whether the fund can consistently grow your money through different market conditions.
Many high NAV funds reached that level because they delivered strong long-term returns and rewarded patient investors over the years. Instead of chasing low NAV funds hoping for “faster growth,” investors should focus on discipline, long-term investing, and choosing quality funds with a proven track record.
In the end, wealth is not created by the number of units you own, but by the percentage growth your investment generates over time. Smart investing always comes from understanding the fundamentals, not from following common myths.
FAQs
1. What is NAV in a mutual fund?
NAV stands for Net Asset Value. It represents the per-unit value of a mutual fund and is calculated based on the total value of the fund’s assets minus liabilities.
2. Is a low NAV mutual fund better for investment?
No, a low NAV does not make a mutual fund better or cheaper. The future returns depend on the fund’s performance, portfolio quality, and management, not on its NAV.
3. Why do some mutual funds have very high NAVs?
High NAV funds are usually older funds that have delivered strong returns over many years. Their NAV grows as the value of the underlying investments increases over time.
4. Can a high NAV mutual fund still give good returns?
Yes, a high NAV mutual fund can still generate excellent returns if the fund continues to perform well and grow consistently.
5. Does buying more units mean higher profits?
No, profits depend on percentage growth, not the number of units you own. Whether you own 10 units or 1,000 units, returns are based on how much the investment grows overall.
6. Are mutual funds similar to stocks when comparing prices?
No, mutual funds and stocks work differently. A stock price may reflect valuation, but a mutual fund’s NAV is only the value of its holdings divided by total units.
7. What should investors check instead of NAV?
Investors should focus on the fund’s past performance, risk level, expense ratio, consistency, fund manager experience, and investment strategy.
8. Do all mutual funds start with the same NAV?
Most new mutual funds are launched with a base NAV of ₹10 during the New Fund Offer (NFO) period.
9. Is investing in a New Fund Offer because of low NAV a good idea?
Not always. A low NAV during an NFO does not guarantee better returns. Investors should evaluate the fund’s objective and management before investing.
10. What is the biggest lesson investors should remember about NAV?
The biggest lesson is that NAV does not decide wealth creation. Long-term discipline, quality investing, and consistent compounding are what truly build wealth.
