Look beyond the NAV
Feb 13, 2007
Personal Finance
There seem to be a flood of Mutual Fund NFOs (New Fund Offers) and stock market IPOs hitting the market this month.
While investors applying to an IPO are mostly clear about the “IPO price”, and why they are investing in it, investors flocking to mutual fund NFOs often get hoodwinked into thinking that an offer of units at par, i.e Rs.10 is the best and “cheapest” option to enter a mutual fund, which is as far from the truth as it could get.
The NAV is the total of all the assets of the mutual fund less the expenses, divided by the number of units outstanding. The calculation of the NAV is based on the current price of all the assets that the mutual fund owns, and and can be related to the book value of a share.
In case of shares of a company, the market price is quite different from its book value and could be higher or lower than it.
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