Does NAV matter? If there are two funds from the same category and both run by seasoned fund managers, does it mean the one with the higher NAV is better? Read on.... Author : iFast Content

Investors 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 time and remember how distributors and fund houses played on this perception during the new fund offer (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 as some sort of achievement and claimed that it is the first time the NAV of any scheme has touched 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 have long histories. But here’s what is interesting to the subject at hand. On January 3, 2005, they both shared virtually the same NAV. Franklin India Prima had an NAV of 111.16 while that of Reliance Growth was 112.86. Over time, the disparity increased substantially with that of Reliance Growth racing ahead. The current NAV of Franklin India Prima is 317.7677 while that of Reliance 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 NAV is much higher? Not at all.

Let’s take a look at their annualised returns.

Trailing returns (as on February 14, 2012)

Reliance Growth (%) Franklin India Prima (%)

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 27.23

Over the very long term (7 and 10 years), Reliance Growth scores. That was because earlier it was 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, Franklin India Prima hit a slightly rough patch with regards to its peers between 2006 and 2008. Ever since 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 not at all true.

When investing in a mutual fund, do NOT get swayed by the NAV. There are numerous other factors to consider. Reliance Growth did extremely well in its early days when it was a mid-cap fund. Later on, as the fund size grew, its portfolio got more diluted as large caps began to gain more prominence. On the other hand, Franklin India Prima prefers sticking to smaller fare and can 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, the point to be noted is that both funds are run by seasoned fund managers and Reliance Growth may pick up in the future. So when selecting funds from the same category, don’t make any decision based on NAV. Look at the trailing returns, how the fund manager has tackled market ups and downs, the risk he takes to achieve returns, investment styles and portfolios characteristics 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.

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