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Does nav matter Does nav matter Document Transcript

  • Does NAV matter?If there are two funds from the same category and both run by seasoned fund managers, does itmean the one with the higher NAV is better? Read on....Author : iFast ContentInvestors often tend to get swayed by the net asset value (NAV) of a scheme. And, unfortunately,end of up making a wrong investment decision based on it. One only has to look back in timeand remember how distributors and fund houses played on this perception during the new fundoffer (NFO) mania, telling investors they can buy the units for just Rs 10.In the light of that, let’s look at a more relevant situation today.In December 2012, the NAV of Reliance Growth (G) crossed Rs 500. The fund house touted it assome sort of achievement and claimed that it is the first time the NAV of any scheme hastouched that mark.Seriously, does it really matter?Let’s look at the growth options of two funds: Reliance Growth and Franklin India Prima.Both funds have an identical investment bent - diversified equity with a mid-cap bias and havelong histories.But here’s what is interesting to the subject at hand. On January 3, 2005, they both sharedvirtually the same NAV. Franklin India Prima had an NAV of 111.16 while that of RelianceGrowth was 112.86. Over time, the disparity increased substantially with that of RelianceGrowth racing ahead. The current NAV of Franklin India Prima is 317.7677 while that ofReliance Growth is 468.5619. A difference of 1.7 has now touched 150!Does that necessarily mean that Reliance Growth is a better investment option because its NAVis much higher?Not at all.Let’s take a look at their annualised returns. Trailing returns (as on Reliance Growth (%) Franklin India Prima February 14, 2012) (%) 1 year 7.73 20.48 2 years 2.65 11.46 3 years 3.97 9.92 5 years 4.55 5.85 7 years 12.31 7.99 10 years 31.75 27.23Over the very long term (7 and 10 years), Reliance Growth scores. That was because earlier itwas a much better performer. Over the past decade, it had a great run from 2003 to 2007. From
  • 2008 onwards, it began to hover around the category average. During the same period, FranklinIndia Prima hit a slightly rough patch with regards to its peers between 2006 and 2008. Eversince 2009, the fund’s fortunes have changed and it has been on a fairly good footing.As can be seen from the returns above, despite Reliance Growth having the higher NAV,investors in Franklin India Prima have got a very good deal.This clearly indicates making an assumption that a high NAV translates into a better fund is notat all true.When investing in a mutual fund, do NOT get swayed by the NAV. There are numerous otherfactors to consider. Reliance Growth did extremely well in its early days when it was a mid-capfund. Later on, as the fund size grew, its portfolio got more diluted as large caps began to gainmore prominence. On the other hand, Franklin India Prima prefers sticking to smaller fare andcan be branded as a pure mid- and small-cap fund.While investors in Franklin India Prima over the past three years are a much happier lot, thepoint to be noted is that both funds are run by seasoned fund managers and Reliance Growthmay pick up in the future. So when selecting funds from the same category, don’t make anydecision based on NAV. Look at the trailing returns, how the fund manager has tackled marketups and downs, the risk he takes to achieve returns, investment styles and portfolioscharacteristics of funds when making an investment decision.To see details on Reliance Growth, click here.To see details on Franklin India Prima, click here.To buy and sell mutual funds online, click here.Content Team,Fundsupermart.com | iFAST Financial India Pvt Ltd.DISCLAIMER iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of theAsset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materiallyinterested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of anymutual fund. No investment decision should be taken without first viewing a mutual funds scheme information document includingstatement of additional information. Any advice herein is made on a general basis and does not take into account the specificinvestment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legaladvice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of thefuture or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise.Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website .Please read ourdisclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is noguarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, theNAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets.Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name ofthe Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement ofAdditional Information and Scheme Information Document carefully before investing.