Sunday, June 22, 2008

Do the high or low NAV really matter?

Nilanjan Dey writes on the perpetual argument on the low vs high NAVs in this Business Line column. He starts off with saying that waiting for corrections indefinitely may not be a good idea. Do not fret if some of your favourite equity funds have risen so much that their NAVs (net asset values) have reached stratospheric levels. That's the crux of an important message that fund houses try to convey every time you confront them with what is clearly a pet theory for some investors: sky-high NAVs are too unfriendly.
However, high NAVs are actually a matter of perception. They need not necessarily stop an investor from putting in fresh money. Instead, in a manner of speaking, they point to the way in which the funds concerned have done in recent times — a trend that is quite ably reflected in the kind of NAVs they have.
Never in the history of MFs in India was this dilemma more relevant as now. As pundits will no doubt tell you, NAVs of equity funds simply represent the state of the stock market. Lately, the latter has done superbly — mind you, it indeed has in the past few years — and NAVs have scaled new highs, crossing a number of psychological barriers in the process.Waiting for correction?
What could possibly prevent the average investor from entering at this stage, considering the sheer rise in NAVs? Well, the answer is obvious. He is waiting for the market to correct, for the NAVs to come down to what he thinks are more reasonable levels. A very astute decision, you may well think, right?
Not entirely. To put it bluntly, waiting for such corrections indefinitely may not be a good idea after all. Just in case the market goes up yet again, the investor may well lose out considerably by not joining forces. That's a very optimistic view, you will contend. There is the likelihood that sentiments may in fact turn bearish, forcing NAVs to slide. Should you then panic and start selling out? Some of us may be tempted to do just that — not paying heed to the argument that the bearishness may be transient.
Let us at this juncture quickly scan the NAV tables to find out how many funds have sailed to dizzying levels. Here goes: Birla Advantage Fund (Rs 150 or so, in the growth option), Franklin Prima (Rs 240), HDFC Prudence (Rs 135), Reliance Growth (Rs 350) and Sundaram Select Midcap (Rs 110). We have rounded the figures for convenience.The rising story
Of course, this list is not comprehensive and quite a few other funds have NAVs of, say, over Rs 100.
In fact, some of the country's older funds (we will include those with 10-year-plus track records) will easily find a place in this sub-set. And, if the longer-term India story retains its appeal, this sub-set will only grow in size. Fund managers will try to capitalise on the opportunities dished out to them by the market. And, as a result, NAVs will keep soaring.
The short point is, all this hype over high NAVs should not deter you from putting in fresh allocations.
If you are convinced about a fund's performance (and its potential), go ahead and write that cheque you have wanted to for a long time. NAVs, high or low, tell just one side of the story. What do you think?

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