Mutual Fund-NAV Question?
Question:
Maybe I am looking at this from a stock prospective-
Question: If you have two mutual funds-
1. Mutual Fund #1 has a NAV of 20; is currently producing at a 30 percent rate of return.
2. Mutual fund #2 has a NAV of 10; is currently producing at 15 percent rate of return.
Which one is the better buy and why? Is it a wash?
Thanks.
Answer:
Mutual Fund #1 is better.
Why would you settle for a 15% rate of return if you can make 30%. The NAV can be ignored. This is simply (total value of account / total shares owned). Technically, an NAV of 20 means that the value of all shares owned averages $20 per share. It's just a measure of average value per share.
Rate of return is the most important thing to look at.
NAV is the Net Asset Value. It is determined by the number of shares of the mutual fund to the value of the assets. Often you get fractions of shares when you buy a mutual fund.
To get to your question, the higher the rate of return the better. If you had $1,000 to spend you would prefer to get 30 percent on your money rather than 15 percent.
The caveat to this is that a higher rate of return is higher risk. History in the stock market is not necessarily an indication of the future. Usually the mutual funds with the highest return one year have the lowest returns the next. It is better to look at a long term average return, such as 3 or 5 years.
technically I agree with the poster above about higher risk being taken on, but it depends on the mutual fund. Some funds have been kicking out 20% over the last 5 years. Yahoo Finance lists the best funds by asset class if you look hard enough.
So invest at the 20 NAV, take the higher return and babysit it. If the return falls below the other, then move it, otherwise take it while you can
First I will answer you questions if you had $10,000 you would buy 500 shares of MF 1 and 1,000 of MF2. The NAV is just the market price of all of the funds assets. So you would start in the same place.
If you are investing I would follow two rules. Do not chase performance & do not put all yours eggs in one basket.
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