Understanding The NAV Of Mutual Funds

Mutual funds are a great investment. They are structured so that a person can invest money into one area, but get a great diversity of investments. This is because the mutual fund company will invest in many different stocks, but lump them all together, and sell them as shares of a mutual fund. So one share of a fund, might actually represent shares of a multitude of different companies. But when things get consolidated like this, often the become confusing and use jargon that most people do not understand, like NAV pricing.

The NAV of mutual funds is the net asset value. Because mutual funds are set up as a conglomerate, they cannot just charge a commission to invest in them. They might have to make a bunch of transactions, just for one person to buy one share of the fund. So instead, they charge a sales charge. This is a set percentage, based on the amount invested (the sales charge decreases as the amount put in increases). This charge is to offset the trade fees incurred. The NAV of the fund is the price before any of these fees have been taken out. If a person wants to invest without paying a sales charge, and always get the NAV pricing, they have a couple choices.

The easiest way to get NAV pricing is to buy into a no load fund. This is a fund that has set investments, that are not actively managed. The person can buy in, pay low expenses, and basically get the same return as what the stock market is doing. If a person wants to get into the best dividend mutual funds, this is probably not the direction to go. The next way to get NAV pricing is to invest over 1 million. Since most people do not have this much money, they have to work their way up to it over the years. Eventually they can see their investments going in at NAV.

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