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(Precious) Words of Wisdom : "Only those who are asleep make no mistakes." ~ Ingvar Kamprad

Did you know that NAV of a mutual fund has 'zero' impact on your returns?

HDFC Index Sensex Fund is a fund that invests in the 30 stocks that comprise the BSE Sensex and in the same proportion. Its objective is to generate returns that are commensurate with the performance of the Sensex. 

Around a year back, as on Jun 11, 2012, its NAV was 139.11.

Let us assume that you invested Rs.10,000 in this fund. Accordingly, you would have received 71.8856 units (=10,0000/139.11).

One year down the line, as on June 7, 2013, the NAV of the fund is 163.0949. Thus, your investment is now valued at Rs.11,724 (=163.0949 * 71.8856).


However, your friend feels that Rs.139 is a pretty high price to pay when an identical fund viz. Reliance Index Sensex Fund is available at an NAV of only Rs.8.134. This fund too invests in the 30 stocks that comprise the BSE Sensex and in the same proportion.

So he prefers to invest his Rs.10,000 in Reliance Index Sensex Fund and receives 1229.4074 units (=10,000/8.134).

One year later i.e on Jun 7, 2013, the NAV of Reliance's fund is 9.574 and thus the value of his investment works out to Rs.11,770 (=9.574 * 1229.4074).

As you can see, both your friend and you make almost the same returns despite the fact that your NAV was nearly "17 times" more than your friend's NAV.

This clearly goes to prove that it is a misconception that a mutual fund with lower NAV is cheaper — and hence better than a fund with higher NAV. (If two funds have the same portfolio, they will deliver the same returns...no matter what their NAVs may be.)

Therefore, you would do well to focus on the other "relevant" parameters to choose the most appropriate fund(s) for your requirements and totally forget about the NAV. As experts repeatedly advise, NAV is a "meaningless" number and should have absolutely no bearing on your investment decision.


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