Does NAV Really Matter When You Invest via SIP

When beginning a Systematic Investment Plan (SIP), many first time investors are drawn to schemes with a lower Net Asset Value (NAV), assuming they are getting more units or a better bargain. However, NAV is not like the stock price of a company it merely reflects the per unit value of the fund’s underlying portfolio at a given time.

So, does choosing a fund with a lower NAV really impact your long term SIP returns. Let’s explore how NAV works, especially in the context of rupee cost averaging, and whether it should influence your SIP decisions.

NAV Basics in One Minute

NAV, or Net Asset Value, represents the per unit price of a mutual fund scheme. It is calculated using the formula:

NAV = (Total Assets – Liabilities) ÷ Total Outstanding Units

NAV is published at the end of every trading day and reflects the current market value of all the securities in the fund’s portfolio after accounting for expenses.

• Important clarification
  NAV is not a measure of how cheap or expensive a fund is.
• A scheme with a NAV of ₹10 is not inherently better or worse than one with a NAV of ₹100.
• It simply indicates the number of units you receive for your investment amount. The underlying portfolio composition, performance track record, and fund management strategy matter far more than the NAV figure alone.

To evaluate mutual funds meaningfully, focus on long term performance, consistency, risk adjusted returns, and fund objectives not just the NAV.

How Rupee Cost Averaging Works

A Systematic Investment Plan (SIP) operates on the principle of rupee cost averaging, which helps manage market volatility without needing to time your entries.

Here’s how it works:

• When the NAV is lower, your fixed SIP amount buys more units of the mutual fund.
• When the NAV is higher, the same SIP amount buys fewer units.

Over multiple market cycles, this process averages out your cost per unit, often lowering your overall investment cost over time. Rupee cost averaging ensures disciplined investing regardless of market highs or lows.

The key benefit?
You continue investing consistently without being influenced by short term market movements a common source of investor error. This strategy is especially useful for long term wealth creation through mutual funds.

Case Study: Same Fund, Different Starting NAVs

Both Investor A and Investor B invest ₹5,000 every month in the same mutual fund.

• Investor A starts when the NAV is ₹10
• Investor B starts when the NAV is ₹50

Final Result

• Investor A started with a low NAV, so got more units early on.
• Investor B started later at a higher NAV, but invested less overall.
• Despite the large difference in NAVs (₹10 vs ₹50), both earned proportional gains relative to their investment.
• The final investment value depends on NAV growth and total units, not the NAV at which you start.
• SIP helps average the cost over time, reducing the risk of timing the market.

When NAV Does Matter (Lumpsum Scenarios)

NAV plays a more visible role when you invest a lumpsum amount:

• Higher NAV = Fewer Units: A lumpsum at a higher NAV gives you fewer mutual fund units for the same amount.
• Short Term Timing Risk: If you invest at a peak NAV just before a market correction, your short term returns may suffer.

Key Takeaways for Long Term SIP Investors

• Don’t overthink NAV at the start – With SIP, you buy more units when prices are low and fewer when prices are high this is called rupee cost averaging.
• What really matters is fund quality-  Focus on the mutual fund’s long term returns, portfolio composition, and expense ratio, not just the NAV.
• NAV is not a signal of value – A lower NAV doesn’t mean the fund is cheaper or better. NAV reflects the per unit price, not the fund’s growth potential.
• Don’t wait for the perfect NAV – Delaying SIPs in the hope of a low NAV can hurt long term wealth creation.
• Start early and stay consistent – A Systematic Investment Plan (SIP) helps you invest with discipline and build wealth gradually, without worrying about market timing.

Final Word

When investing via SIP, the starting NAV doesn’t play a major role in determining your long term returns. What matters more is how consistently you invest, the quality of the fund, and how well it performs over time. SIPs are built on the principle of rupee cost averaging, which helps reduce market timing risks and ensures disciplined investing.

So, instead of chasing low NAVs, focus on:

• Your investment goals
• The fund’s track record
• Portfolio strategy
• Expense ratio

With the right SIP, you can start small, stay consistent, and steadily build long term wealth without worrying about whether the NAV is ₹10 or ₹100.

FAQs

Q1. Is a lower NAV better when choosing a mutual fund for SIP
No,NAV only indicates the price per unit, not the quality or potential of the fund. A lower NAV doesn’t mean a fund is cheap or undervalued. What matters more is the fund’s past performance, risk adjusted returns, and portfolio quality.

Q2. Should I delay SIP if the NAV is high
Not necessary, In SIP, rupee cost averaging works in your favor. Over time, your average cost gets balanced out. Delaying SIPs in the hope of a lower NAV might mean missing out on potential gains.

Q3. When does NAV actually matter
NAV is more relevant in lumpsum investments, where the number of units you get is fixed at the entry price. Entering at a high NAV before a market correction could impact short term returns.

Q4. Will I get fewer returns if I invest in a fund with a high NAV
Not necessarily. Returns depend on how much the NAV grows over time, not its starting point. A fund with a NAV of ₹100 growing to ₹150 gives the same return as one growing from ₹10 to ₹15 both are 50% gains.

Q5. How often should I check NAV or SIP performance
Avoid tracking NAV daily. Instead, review your SIP performance quarterly or semi annually. Focus on long term goals, and consider increasing your SIP amount as your income grows.