2 weeks ago
Mutual Fund NAV Can Mislead Investors Despite Similar Prices
An investor was choosing between two mutual funds.
One was a midcap fund, and the other was a liquid fund.
He saw that their NAVs were close, at about ₹37 and ₹35.
He thought this meant the funds were similar in value.
He also noticed that the liquid fund had a five-star rating from Value Research.
Because of these details, he decided the liquid fund was the best alternative.
The article warns that a fund’s NAV can give investors a misleading impression.
A similar NAV does not, by itself, explain whether two funds are good alternatives.
An investor compared a midcap fund with a liquid fund based on their NAVs.
The midcap fund’s NAV was approximately ₹37.
The liquid fund’s NAV was approximately ₹35.
The investor said the liquid fund was the best alternative to the midcap fund.
He also cited the liquid fund’s five-star Value Research rating in reaching his decision.
- Who
- An investor comparing a midcap fund and a liquid fund.
- What
- The investor chose a liquid fund as the best alternative to a midcap fund after comparing their NAVs and rating.
- Where
- When
- A few days after the initial discussion.
- Why
- He said the liquid fund had a five-star Value Research rating and an NAV close to that of the midcap fund.
Investor’s interpretation
Article’s caution
Meaning of similar NAVs
Investor’s interpretation
The investor treated the nearly identical NAVs of ₹37 and ₹35 as evidence that the liquid fund was a suitable alternative to the midcap fund.
Article’s caution
The article warns that a mutual fund’s NAV can mislead investors and should not be treated as sufficient evidence that two funds are comparable or interchangeable.
Key facts
- Midcap fund NAV
- Approximately ₹37
- Liquid fund NAV
- Approximately ₹35
- Rating cited
- Five stars from Value Research
- Investor’s conclusion
- The liquid fund was the best alternative to the midcap fund
- Article’s warning
- NAV can fool investors when comparing mutual funds
Sources
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