In mutual funds, only the time of buying matters?

Question

I understand that at periodic intervals you invest money and buy securities, thus increasing the number of units you hold. So if the NAV is low you buy more units and if the NAV is hight you buy less units. Then since the number of units you hold remains the same no matter how the market performs, and the money from the fund is not withdrawn till the locking period is over, is it so that the entire time period till the next buy doesn't matter at all?

"The NAV of a mutual fund will rise or fall in the same proportion as the underlying securities they hold. "
Yes, but the number of units remains same, right? So ultimately how do the market fluctuations matter in the end?

Number of units = Number of equity shares held (for equity oriented mutual fund, for example)

Answer 1

I am confused by your question.

The NAV of a mutual fund will rise or fall in the same proportion as the underlying securities they hold.

Answer 2

Whenever you want to invest in an mutual fund there are two ways to do it.in an existind scheme of a mutual fund.
1. Invest whenever you want and units will be alloted at the NAV on that day. In this case it is advisable to buy when the markets are down as you will be alloted more units as the NAV during that time will be less.
2. SIP ie. Systemic Investment plan. This is done by the mutual fund upon your request every month for the period you choose. For this the mutual fund will collect cheques in advance or get an authorization from you for ECS ie. they will get the credit from your bank directly every month and you do not have to give all those advance cheques.
In mutual fund you do not hold any securities but only units and its value is the NAV of that fund. This NAV goes up and down according to the perfomance of the mutual fund.
There is no lock in period for an existing scheme of a mutual fund. You can buy and sell the units any time you want.
The units purchased and alloted to you will always remain the same unless you sell or buy. Only the NAV changes.
For a new scheme the units will be alloted to you at the issue price, and in this case also you can buy or sell as soon at it is listed and usually in mutual funds there is no lock in period. It can be only open ended or close ended.

Answer 3

Well, sort of.

The NAV is just a way of tracking the current value of what you hold in the fund. So if you have 100 units or shares and the NAV today is $38.96, then your investment is worth $3896.00 today.

Now, if your last buy or sell was at a NAV of $40 and your next buy or sell ends up at a NAV of $40, it doesn't make any difference if the NAV hit $38.96 in between.

So if you're just saying that checking the NAV daily is useless if you're not going to buy or sell daily, then yeah, you're kind of right. There are a number of people who think you'll be a better long-term investor if you don't get all caught up in the daily fluctuations of stock (or fund) prices, and there's an element of sense in that approach.

Answer 4

typically , in mutual funds , one does not transact too often.. ie , buy or sell to often.. the idea of mutual fund is to collectively participate in many scripts with as little money as possible.. the fund house would not have a free hnd to invest in case all the subscribers start withdrawing .. also , mutual funds work for small time investor who do not have the proficency or the time to monitor the stock market.. obviously they chrge for their service..
ideally , in case u are opting for SIP, then u can do better by timing the buy time in the first week on the month, where the nav prices are slightly lower...

but , yes , in case the NAV is incresing then actually it does not make logical sense to still keep on buying the units, but u need to understand that, that SIP is primarily meant to inculcate the habit of saving and investing...and the longer u continue the better profits you make

Answer 5

The number of shares you own remains the same (until you sell some or buy more), but the value of each share can go up or down. So if the mutual fund gains value, each of your shares increases in value and thus your total investment is worth more money.

Then, if you invest the same dollar amount next time, you'll be buying fewer shares. But if things go well, those new shares (and the older ones) will keep increasing in value. When you eventually sell, you'll have all the money you put in, plus all the gains in value (if any) that accumulated over time.

Answer 6

You are missing the key here......

The very objecive of SIP is to minimise the Capital invested and maximise the profits.
Through SIP, there is every chance that you ultimately land up paying less for the same no of units compared to that purchased at once.

The catch here is not the no of units you hold, It is the amount paid by you to buy those no of units.

Yes, I would agree that SIP returns are less compared toa lumpsum investment when the markets go in a one way direction upwards. Then the markets don't behave like that.

Answer 7

if you wanted benifite of rupee cost averaging benifitr, sip is the good option