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Buying funds at lower NAV vs higher NAV

The NAV of a mutual fund being high or low has absolutely no relevance to your decision to invest.

Let’s say that I invested in a mutual fund 10 years ago with a NAV of Rs 10 which has grown to Rs 40 today. My friend invested in a mutual fund at the same time with a NAV of Rs 100 which has grown to Rs 402 today.

If you were investing today, which fund would you choose? You will most likely choose the second fund because it has a slightly better performance track record (all other things being equal).

In the above example, you might notice that the returns are very similar for both funds - growth of 4 times in 10 years or 14% annualised rate of return. The small difference in returns of the two funds comes from the way they took their investing decisions and not from the starting NAV.

Summary

When you invest in mutual funds, you have to look at the growth of your money over time. The NAV of a fund at a given point has no relevance. What is important is how that NAV grows over time because you can determine the performance of a fund based on that growth.

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