In mutual funds, why does growth funds have comparatively very high NAV? Does this suggest they are good buy?

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In mutual funds, why does growth funds have comparatively very high NAV? Does this suggest they are good buy?

protege

The simple answer is NO.

No. 1 myth. A lesser NAV means a unit is cheap and higher NAV means a unit is expensive.

The value of a MF unit depends on the underlying portfolio of assets and the purpose of the scheme. Secondly to answer your specific question, in a fund with a growth option, dividend declared or profit generated by the Asset Management Company on the scheme is reinvested. That is profits are not paid out to the unit holders as opposed to the same scheme with a dividend option where dividend is distributed. But as the profits accumulate the NAV of the former becomes higher than that of the later. Though the same rate of profit/loss accrues to both the units.

Other thing, here you have used the word 'growth fund'. Growth fund is different from 'a scheme with a growth option'. Later is already discussed. however in a growth fund, money is invested in stocks that are identified as growth stocks (the ones which have registered high growth in prices and have high future growth potential). it is not necessary that such growth fund would have higher nav.

eg. Reliance vision fund and Reliance growth fund both have dividend and growth options.
HTH

derobake

The NAV of one share tells you nothing by itself. Only changes in NAV matter. This is because different funds have different amounts of mutual fund shares outstanding at any point.

Download a free copy of my book at http://www.invest-for-retirement.com and go straight to the chapter on "The Anatomy of a Mutual Fund" to learn more about NAV.

Rej

Growth funds have higher NAV as opposed to dividend paying NAVs since the dividends and captial gains are reinvested by the fund rather than paying them out as dividend to the unit holders.
This ensures in the long term that your return from growth funds will be higher than dividend paying schemes unless you can use the dividend received in an efficient manner and can obtain higher returns than the mutual fund manager.

Common Sense

The NAV means nothing. Holdings in a Mutual Fund change everyday. The fund could easily "split" the share price and you'd have the same amount of money (just a lower NAV and more shares).

Do not use the NAV to judge anything.

vinay

Contact : vinay_p1979@yahoo.co.in

dinu_pawar

search MF FAQ

visit rediff > personal fin

& my blog

Tanisha

Not at all ,
Bcoz buying habit affects their inter comp. not the interfunds .
as u 9 dat all funds r differentiated on d basis of their level of investments.
Their NAV is high Bcoz they have freedom to invest in any growing fund.but other funds can't do such things.
It only game of their freedom to invest & mind.

gary d

Absolutely not, NAV is the same as the market cap of a stock. I merely reflects the value of the assets if a fund. You are see higher NAV's know because we are in a growth market and growth funds have done what they do in a Bull market. Since these funds tend to be higher risk if the market changes those assets will also disappear much faster then a more conservative fund.

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