Why you shall not obsess for getting “same day NAV”?

POSTED BY Jagoinvestor ON April 27, 2022 COMMENTS (22)

A lot of investors are quite worried that they do not get same-day NAV when they invest in mutual funds? There are days when markets are down by 1%, 2%, or even 3-4%, and it’s a great opportunity to invest in equities at lower NAV!..

However due to the recent changes by SEBI, Now the NAV is allotted on the realization of funds by the fund houses before the prescribed time of 3 pm.

Same day NAV vs Next Day NAV - Which one is better?

This simply means that most of the investors are not able to get the same-day NAV (except in a few cases). This frustrates the investors and they feel they are losing out on this opportunity because markets may go up the next day and they will not get a lower NAV.

In fact I am also seeing many articles and youtube videos teaching investors – “How to get same-day NAV in mutual funds” without even understanding if it’s worth the effort or not. There are some ways through which you get same-day NAV like if you invest through AMC portal directly or invest using UPI in the MFU platform or invest very early by 10 or 11 am so that your money reaches AMC the same day.

But is it really worth the effort?

So we thought of doing a small study on this topic and investigating if investors are really losing out a lot or not?

In our study, we found out that the same-day NAV or next-day NAV does not matter for investors over the long term and it has almost no impact on their wealth creation in equity funds.

Now let me share some stats and what we found

For this study, we picked 3 equity funds that are quite old, which were

  • ICICI Pru Discovery
  • Franklin Prima Plus
  • Birla Equity Hybrid 95

Also, these are at least 18 yrs old funds and we downloaded the NAV of these 3 funds since inception. We have the data for a total of 4350 NAV points.

As a next step, we assume that there is an investor who wants to invest when markets are down. For that, we picked all those days when NAV of these funds came down by 1%.

Then we also found out how many times NAV of that fund was again down the NEXT day!!. Let me show you the data

 

So if you look at the NAV data of ICICI Pru Discovery, there was a total of 543 out of 4350 days when NAV was down by more than 1%.

What happened the next day?

  • 258 days, the fund NAV was UP with an average upmove of 1.02% (average of those 258 days)
  • 285 days, the fund NAV was DOWN with an average downfall of -1.37% (average of those 285 days)

This simple means that on average, the next day NAV was actually lower than the day of investment and it was a good thing to get the next day’s NAV rather than the same day’s NAV.

Same-day NAV or next-day NAV? Which created more wealth?

Let’s assume that a person invests Rs 10,000 in the fund whenever NAV of the fund is down by more than 1%, then there are two cases..

  • Case 1: Investor same-day NAV
  • Case 2: Investor gets next-day NAV

We found out that the wealth created was MORE in case 2 actually, however, the difference was not significant enough to brag about. Let me show you the numbers

  • Case 1: Investor same-day NAV : Rs 3,47,08,084
  • Case 2: Investor gets next-day NAV : Rs 3,48,48,780

The difference between same-day and next-day NAV is roughly 0.41%, so by getting next-day NAV the investors create 0.41% more wealth, In this particular case, it was actually a good thing for investor to NOT GET the same-day NAV

Let me also show you how the wealth will increase over time in both the cases

Same day and next day NAV wealth chart

If you look at the graph above, there are actually TWO charts. The red line is the growth of wealth (with Rs 10,000 investment every time markets fall by more than 1%) in case the investor gets same-day NAV. And there is a black line that shows the next-day NAV case. You can see that both the lines are so close that you can literally just see one single line.

Data with the other two mutual funds?

Let me also show you the same study results with Franklin Prima Plus and Birla Equity Hybrid 95 fund.

Franklin India Prima Plus

Incase of Franklin Prima Plus, whenever NAV was down by more than 1%, the next day NAV fell again 56.83% of the time and it was more probable to get a better NAV if one got the next day NAV.

Investors created roughly 0.26% more total wealth by getting the next day’s NAV

Birla 95 fund Next day vs Same day NAV

In the case of the Birla Equity Hybrid 95 fund whenever NAV was down by more than 1%, the next day NAV fell again 51.66% of the time and it was more probable to get a better NAV if one got the next day NAV.

Investors created roughly 0.13% more total wealth by getting the next day NAV.

Markets down by more than 2% and one got NAV after 2 days?

Let us also see what if we changed the data a little bit. What if one invested when markets were down by more than 2% and one got NAV after 2 days (not just the next day)?

If this happens then how will data change? 

Research on same day or next day NAV confusion

You can see above that even if one gets NAV after 2 days, still, two funds created more wealth. If you look at ICICI pru discovery fund, 3.54% of the times the NAV of the fund fell by more than 2%, and whenever that happened, 48.70% of the times, the next day NAV was further lower, it was beneficial to get the future NAV and not same-day NAV.

Eventually, by getting after-2-days NAV, the person was able to generate 0.70% more wealth compared to same-day NAV.

Conclusion and What we can Learn

By the time you may have figured out that while investors visualize that the day NAV can again go up, they forget that the next NAV can go down also and they can get an even cheaper NAV.

Over time, if you are a regular investor who is there for the long term, sometimes you may get a little higher NAV the next day and sometimes you may get a lower NAV, which eventually cancels out the impact.  So here are the learnings

  • If you get next day NAV, there is almost a 50% probability that you will get an even lower NAV
  • Over a long time, the amount of wealth you will make will not be very different in the case of same-day or next-day NAV
  • The worry and frustration are not worth it at all, and you shall just not worry about what NAV you are getting.
  • If markets jump by 2-3% on a given day and you want to book profits, then it’s better to sell the next day as the chance of getting a better NAV is higher on the next day due to the same logic.
  • While you may lose out a bit on a single transaction, there will be other transactions when you will benefit and in totality, you won’t lose out at all. In fact, the study shows that you are better off getting the next day NAV to improve your returns, but then it’s a small margin.
  • Next time when markets are down by a good amount, investing on that day is more important than which day NAV you are getting. So focus on systematic investment more than anything else

Note that we are not discussing in this article if it’s morally right or wrong for AMC to give you the next day NAV. Those are surely technological challenges that need to be solved. In this article, we just wanted to do number crunching to find out which path is better and I hope we did the job

We would love to listen to your comments on this topic and if you think otherwise?

 

 

close

Subscribe to Newsletters

22 replies on this article “Why you shall not obsess for getting “same day NAV”?”

  1. Limited says:

    I too have faced similar situation. Often obsessing over dips and falls and thinking to invest the very same day in order to buy at cheaper NAV. This piece does put things into perspective. Now invest as and when I have the money.

  2. Rahul says:

    Thanks for data analysis but could you please confirm me if today market fallen by 1000 points and tomm if market gap up with 1000 point then still 2nd day lower nav logic works??

    1. Jagoinvestor says:

      Over a long term .. when you calculate numnbers for 1000 or 2000 transactions then one single transaction result wont matter.. Thats the whole point .. We have already seen the data .

  3. Ronak Matta says:

    Nice Article, Time in the market is more important than timing the market

  4. Ashok Kumar says:

    Good one. I can understand a clear message from this article.
    Simply do an SIP and don’t worry about the same day NAV or next day NAV.
    when we have a clear long term goal and staying invested through SIP everything will be factored in and there is a higher chance we will be able to achieve the goal.
    Compounding and disciplined SIP will take care of other factors.

    1. Jagoinvestor says:

      You got the message

  5. Seetharama Nadoor says:

    It may be worthwhile do this exercise as well:
    How many SIPs are required to ‘neutralize’ the effect of change of NAV on the day after payment is made?

    1. Jagoinvestor says:

      I have seen this .. in 20-30 SIP the change in both paths is almost negligible ..

  6. SK Sharma says:

    Very good and thought provoking analysis. I fully agree with that same day or next day NAV does not matter in long run. Pl. keep on doing this type of analysis.
    Thanks.

    1. Jagoinvestor says:

      Thanks a lot 🙂

  7. Vivek says:

    Some time ago, I placed a redemption request in one of the Franklin’s fund around 10:30 am on their portal as I had directly invested there. My redemption was processed on next day’s NAV. When I complained about it, AMC said that’s the rule which I couldn’t understand. Is cut-off time not applicable for redemption requests?

    1. Jagoinvestor says:

      You shall have got the same day NAV in your case.

  8. Wave Ocean says:

    I am afraid this is an over simplification and fuzzy logic — with no recommendation…
    1) When you say 50% chance next day will be lower; only means it can be 50% higher too.
    That means it is uncertain.
    2) All the other bullet points “in long term”, “other transactions, in totality” (with “selling NAV” interposed to confuse) only justify innovation of SIP type tools.
    3) Averages and probabilities cannot give a solace to a individual’s purchase or sale.

    1. Jagoinvestor says:

      1. Yes it is uncertain? you are correct. Data also shows that. You are repeating what I said

      2. You are again correct. Only a person who is doing systematic investment over long term multiple times will not be impacted by this same day or next day NAV thing

      3. I agree. Individual transactions will be a win or loss.. Only the total will be converging to a no loss no gain. It will need a lot of investing maturity and experience to get over this trivial headache which is not worth the effort

      But for someone who is looking at each transaction separately this article is not true.

      Please which part of article you dont agree with along with some logic so that we can debate and discuss it.

      Manish

      1. Wave Ocean says:

        Thanks Manish.
        A coin giving a 50% Probability of toss. gives the crown of “FAIR COIN. ” Most unpredictable.
        All other coins are unfair coins — that is predictable.
        Why make a fuss of an article for a 50% probability event.
        The point the article enlightens is NAV time is decided by when the fund transfer is completed — may be difft times through difft “gateways”/ Full Stop.

        1. Jagoinvestor says:

          The article is just telling people that what they worry is REAL for one transaction, but pointless if they are a 10-20 yrs long investor who invests regularly

  9. G Viswa Narayana says:

    Sir

    The article is not convincing. It seems the article is supporting the lapses in the system. Not protecting the Investors.
    Now a days market is very volatile. Even sensex 1,000 points difference. Defenently, the returns will be less, if purchased on next day.

    My practical experience. I purchased lumsum at 9.30AM , even then, I get nav on next day.

    We can transfer the amount to the accounts of AMC online ( default details provided by them) only. We can’t transfer amount to his broker or accounts of stock exchanges .

    When crores of transactions are being done in stock exchanges in fraction of minute, why Mutual Funds are not doing.

    Please highlight the issue in the intrest of the investor not other wise.

    1. Jagoinvestor says:

      Sir.. which part of the article you found incorrect? Already said that we are not discussing the solution of the problem in the article

      I am wondering how can you not agree with data and mathematics? As far as glitches in the system, I already said that we are not discussing that in this article. You can send me a write up on this issue and I would love to publish it.

      Manish

  10. Ajay says:

    India is the most advanced country in terms of payment processing speed. RTGS, IMPS are settled in minutes. NEFT at Max takes an hour. With 3PM cut-off time any transaction before 2PM ( considering slowest NEFT), still anyone can get the same day NAV
    Considering this can you explain below?

    This simply means that most of the investors are not able to get the same-day NAV (except in a few cases).

    Obsession comes from frustration, if we can’t meet the timeline. Which doesn’t look to be a case anymore.
    If there is no problem, why to bother about the solution.

    1. Jagoinvestor says:

      That was not the agenda of the article as I already said. I am just doing a data analysis

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

FREE Financial Health Checkup

Take up a detailed 25 questions financial health checkup to find out how much you score out of 100?

Subscribe to Newsletters

Archives