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Highest NAV Guaranteed in Mutual Funds

BY: Jo Justin | Category: Finance | Submitted: 2010-03-27 08:27:08
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Article Summary: "Is the highest Net Asset Value (NAV) guaranteed in a mutual fund? You have to think and analyze the details of the fund carefully before investing. Here are a few tips that will help you..."

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There are many companies that offer a new breed of mutual funds in India and these funds are creating quite a stir in the country. People who have been battered by the stock market when they lost all their money were looking at very safe avenues to park their money that will not cause erosion in the capital amount but also give them bigger returns like that they get from the stock market.

The Highest NAV guaranteed in certain Mutual funds in India, has made all these people to wonder if this s the light at the end of the tunnel for them. They are all eager to put all their money into this mutual fund that helps them to tide over the even of any crash in the stock market as they are guaranteed to give the maximum amount possible on the NAV at the end of the term for the mutual fund.

All these people who are planning to put their money in should remember something that will make them to think twice if they really want to invest in this fund.

1. Returns on what amount:

The fund managers advertise saying that they will give you guaranteed returns. They do not quote a specific percentage of the returns. This is because they do not know what the return will be. They will give a return on your investment and that is guaranteed, but what is not guaranteed is the percentage of returns that you will get at the end of the term.

2. Where will the investment be?

Another fact that has to be understood by the individuals wanting to invest in these schemes is that if the fund manager will park a maximum of the investment in the equity market. There is no point if the fund manager invests all your money in the debt market. Even you could have done that. You do not need to pay your money to the fund manager to get that done. The usual thing that happens is that the fund managers only use a small percentage to be invested in the equity market. The rest of the money is parked in low return low risk funds and so you get only a specified percent of return on your investment.

3. Do they promise that the returns will beat that of the equity market?

The fund promises to give you the highest NAV of the fund. They do not promise to pay you the highest returns of the equity market. The equity market may grow at about 20 percent per annum, while the money invested by the fund manager may give a return of only 15 percent. So there is no gain for you by investing in the fund. In fact your earning will be less than the amount you could have earned if you had invested in a fund that invested fully in the equity market.

So remember that the gimmick that funds use by informing that they give you the highest NAV is really not dependent on the return of investment you get if invested in equity funds.

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