One misconception about the term, net asset value (NAV) is that it is no different from stock price. Often, agents are in a better position to cheat you, if you are not aware of the difference. Misconceptions about NAV may result in serious mistakes in your investment planning. This article takes attempt to clear some common misconceptions about NAV of mutual funds.

Things You Should Know about Mutual Fund NAV

How NAV differs from stock price? Well, the value of NAV is announced only once in a day, while the value of stock price keeps changing throughout the day and is declared in almost every hour. This is mainly because NAV calculates the value of underlying assets, once the trading of those assets gets completed at the end of a day. Moreover, NAV does not indicate the performance of a mutual fund scheme, like the stock price does. The following are some of the other myths:

• An NAV with a lower value is more advantageous than one with a higher value - NAVs indicate market value of investment. It is incorrect to assume that an NAV priced at Rs. 10 will be attractive than one priced Rs. 40, cost-wise. Similarly, a higher-priced NAV will not be necessarily better than a lower-priced one. Pricing of NAVs is done according to the time elapsed since the launching of the fund. Even though crackdowns have mitigated losses from frauds, a prudent investor should not heed to the prices of NAVs at all.
   
• NAV of mutual funds and that of insurance schemes are not the same - NAVs in mutual funds and those in unit-linked insurance plans are not always similar. In case of equity mutual funds, NAV movement is according to the stock market indices. In a ULIP, the NAV moves corresponding to the Sensex or the Nifty.
   
• NFOs are cheaper because NAV is 10 – With launch of New Fund Offer (NFO) came the myth that buying during the new fund offer period is cheaper and NAV shoots to three or four times after that. Unlike what happens in bonds and shares, cheap or expensive NAV in mutual fund exists only in the imagination of the gullible. The truth is that as long as long-term investments are concerned, investment can be made anytime, with due respect to the investor's risk profile, age and asset allocation.

It is necessary to understand the implications of NAV of mutual funds to guard against returns that are less than what you deserve.