Definition
Anchoring to NAV
Anchoring to NAV is the mistaken belief that a mutual fund with a low net asset value is 'cheaper' or better value than one with a high NAV.
A fund's NAV is simply its per-unit price; a ₹10 NAV is not inherently cheaper than a ₹100 NAV, just as the same money buys fewer units of the latter but each unit owns proportionally more. Returns depend on the percentage growth of the underlying portfolio, not the starting NAV level, so a low NAV signals nothing about future performance.
This bias is exploited by new fund offers marketed at a ₹10 NAV to look like a bargain. The corrective is to ignore the NAV figure entirely and assess a fund on its strategy, costs, track record and fit with your plan.
Related terms
- Anchoring BiasAnchoring bias is the tendency to lean too heavily on the first piece of information you see — the 'anchor' — when making a financial decision, even when that number is irrelevant.
- Behavioral FinanceBehavioral finance is the field that studies how psychology and cognitive biases affect the financial decisions of investors and markets, departing from the assumption of perfectly rational actors.
- Recency Bias in Fund SelectionRecency bias in fund selection is the error of choosing mutual funds mainly on their latest short-term returns, expecting that recent outperformance will persist.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.