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A few weeks ago, the


AIM Aggressive Growth fund split its shares into four equal pieces, which lowered its price to 20 from 80 a share.

Pay no attention to this stunt or others like it. With mutual funds, unlike stocks, the share price simply doesn't matter.

A fund's shares are priced according to the value of the portfolio's total holdings. The net asset value per share, or NAV, is the value of all the fund's holdings divided by the number of shares outstanding.

The NAV represents the value of a single share. But that number tells you almost nothing about the fund. It won't tell you if a fund is cheap or not and it won't really tell you how a fund has performed.

"The NAV has nothing to do with the real worth of the investment," says Scott Cooley, a senior analyst at



At a cocktail party, it might sound good to say that you bought

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Magellan at 100 and now it's trading at 135, but that a fund's price changes over time won't tell you how much you've really made on your investment.

For one thing, mutual funds must pay their net realized capital gains to shareholders every year. These distributions will reduce a fund's NAV -- sometimes dramatically. If you're reinvesting those distributions and buying more shares at the new price, the share price won't reflect how much you've actually made or lost in the fund.

If you bought a new fund at a nice round price of 10 a share, the NAV can serve as a reference point for how your investment is doing -- at least initially. But once the fund starts making distributions or you start buying more shares at different prices, the share price means less and less. (The NAV at purchase also comes into play when you want to sell, as it's used to calculate your cost basis.)

Also, the NAV on a new fund is purely arbitrary. It may be a nice round number, but it has no meaning.

No Comparison

A fund's NAV is even more useless when you try to compare one fund with another.

Look at

S&P 500

index funds, for example. These funds are almost identical to one another and are supposed to produce the same performance. But their share prices vary wildly.


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Munder Index 500 has a price of about 30 a share. The mammoth

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Vanguard 500 Index fund has an NAV of about 134.

Buying the one with the cheaper price doesn't mean you're getting a bargain or a better deal.

If you want to know how a fund has done over time, look at its total returns for various periods. Expressed as percentages, the returns will let you compare the performance of one fund with that of another. For example, the Vanguard fund, with its three-digit price, has a one-year return of 13.6% compared with 12.9% for the Munder index fund, which happens to sport a sales charge and a higher expense ratio.

If you want to know how much you're really going to pay for a fund, you do need to look at its expense ratio. This number will tell you how much it's going to cost you to own that fund each year. Study after study says that lower-cost funds tend to outperform higher-cost funds over time. These numbers actually mean something.

Four Quarters for $1: What a Deal!

If share price is irrelevant, then why do some companies split the shares of their funds to lower those NAVs?

In a word: marketing. These companies are preying on the perception that a lower share price is better and are hoping to attract more money into their funds.

A lower price makes investors feel they're getting more for their money. "Someone just gave you four quarters for a dollar," says Jim Benham, an adviser with

Benham & Green Capital Management

in La Jolla, Calif.

With the AIM Aggressive Growth fund, investors now get four shares for their $80 rather than just one.

AIM spokesman John Roehm says the reason behind this recent split was psychological more than anything else. "You put in $25 a paycheck. You ended up buying

a fractional share and it's not very satisfying," he adds.

But you don't buy mutual funds based on a number of shares, unlike stocks. You make purchases according to the amount you have to invest. Fund shares can also be sold in fractions. If you have $1,000 to invest in a fund, you can put all of that to work at once, no matter how high or low or uneven the share price is.

Nevertheless, the perception that share price matters persists.

A recent posting on


discussion boards proves just that.

Discussing the new

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Janus Orion fund under the headline "Orion On Sale," one investor crowed that the fund's price was below its initial $10 price. "Was this a one-day sales event or will the bargain continue tomorrow?" the investor asked.

A fund is only a bargain if it has a low expense ratio or happens to own a load of cheap stocks.