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Is a Rs. 10 mutual fund better than a Rs. 100 fund?

A number of people think that the unit price of a mutual fund matters when they purchase; i.e. that a cheaper unit price is better. Why? They say that they will get more units for the same money, and isn’t that better?

“Number of units”
The “Number of units” does not matter at all. It is all about gain percentages. The best funds have gained some 750% in five years. What does that mean? That means if you bought that fund at Rs. 10 in 2001 its NAV will now be Rs.75 .

If you bought it at Rs. 20, NAV will be Rs. 150.

There are lots of such funds whose NAV is greater than 100 or 150 because they have performed very well.

What’s the NAV?
The total NAV, or “Net Asset Value” is a simple concept – First you get the “Net Assets”, which is the sum total of all the assets minus any liabilities of the fund. Meaning, add the current market value of all the shares, minus any open redemption requests and any applicable charges (like Daily fund management fee etc.) and you get the Net Assets. Divide the Net Assets figure by the total number of outstanding units and you get the unit price (called the “NAV Unit Price” or simply, the NAV).

Most web sites and newspapers call the unit price “NAV”. It’s actually the NAV unit price, so the phrase is confusing. Let me not confuse you any further: I will call the total assets as the “Net Assets” and unit price as the “NAV”.

Now you might think, if you have a 10,000 rupees, is it better to buy 1,000 units of one fund quoting at Rs. 10 NAV, or 100 or those quoting at hundred? Frankly it’s dependent on how the fund performs. If the second fund grows at 20%, your units are worth Rs. 12,000 at an NAV of Rs. 120. If the first one grows at 10%, your units are worth Rs. 11,000 at Rs. 11 NAV. What is better? Obviously the second one, but over here the NAVs are still Rs 11 vs. Rs. 120!

Lesser number of units is like small change
But what if you have a 1000 Rs. NAV? That’s a problem, you think; if you want 2,500 rupees, you have to sell three units! That means you take out more than you want, right? Also what if you have 1200 rupees to invest? You can only buy one unit, right?


In Mutual funds you also get “fractional” units. So if you invest Rs. 1000 in HDFC Taxsaver, whose nav is Rs. 149.44, you will get 6.692 units. (Some funds even go to fourth decimal)

You can then sell fractional units also, like 1.212 units etc!

Growth is important, not unit price
What you care about is how much your money grows, not the number of units you have. It is just as difficult for a Rs. 10 fund to move to Rs. 12, as it is for a Rs. 50 fund to move to Rs. 60.

  • Anonymous says:

    >Hi Shenoy,

    I am a newbie to MFs and have a question.

    I was going through the annual returns for HDFC Equity growth fund.

    It states: for 5-Years the annualized return is: 50.16%. What does this mean?

    If i invest Rs. 2000 every month through SIP in this fund what will I get after 5 years.

    NSC gives around 60% after 6years guaranteed. Will it not be a better bet?

    If I invest Rs. 10000 today after 6yrs I will get 16000.

    Pls explain!

  • Deepak Shenoy says:

    >Anonymous: 50.16% annualized means in real terms 763.4%. That means if you had put Rs. 10,000 in HDFC equity five years ago it would be worth Rs. 76,340 today. That’s much higher than what the NSC gives you 🙂

    In terms of your question about how much you may get: There is no guarantee. Mutual funds have no guaranteed returns. It’s about about how the market performs, so honestly you can have a BIG upside, or even a BIG downside! So there is a risk of losing your money also – so as much as you can gain, you can lose also. NSC on the other hand is guaranteed so there is no chance of losing your money.

    Equity Mutual funds have returned much better than NSC returns, but that may or may not continue. The fund management of HDFC is very good, so they will try their best to give you good returns; but honestly if hte market tanks there is not much they can do either.

    Let’s jsut say that historically, the NIFTY has grown at about 12% annualised since 1996. Now if your fund grows at the same rate you will get Rs. 2.09 lakhs in six years (NSC for the same period will give you 1.85 lakhs) Your investment is 1.44 lakhs totally (72 months, 2000 a month)

    Of course the fund can grow at different percentages with the following results:
    5% (Rs. 1.67 L)
    10% (Rs. 1.96 L)
    15% (Rs. 2.31 L)
    20% (Rs. 2.74 L)
    25% (Rs. 3.27 L)

    Expecting more than that is not wise, though it has happened in the past. Let’s stick to reasonable expectations.

  • jeeves says:

    >Hi Shenoy,
    Your blog is impressive, i’m a collage student & i like to invest in MF….. i could pay a sum of Rs1000/month.. which fund do i invest for a period of 3 years?….. pls do advice

  • Anonymous says:

    >hi deepak
    what would you rate as the three best equity funds today ?