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Sunday, January 19, 2020

Mutual fund

Mutual fund

Mutual fund

what is a mutual fund the word mutual implies a group of people coming together and funds means pooling of money therefore the term mutual funds suggests a group of people putting their money together to buy stocks and bonds or in some cases a combination of both I'll think of it like this a baker bakes a million pound cake the cake is made up of a variety of ingredients each ingredient is an individual stock or bond the list of these ingredients makes up your portfolio this fund is managed by a professional fund manager who manages the spool of money and builds a portfolio which is in line with the investment objective of the scheme investments are spread across a wide cross-section of industries and sectors this ensures that risk is controlled because all stocks may not move in the same direction in the same proportion at the same time does it helps balance things out what are mutual fund units and how is their nav calculated mutual funds issue units to the investors in accordance with the quantum of money invested by them investors in mutual funds are commonly known as unit holders when an investor invests money in any scheme he or she is allocated units the value of each unit is called nav it's reflective of the current market value of a single unit of the farms holdings when investors

invest in the fund they buy units of the fund at its nav price let's go back to the Baker and the cake to make the cake affordable the Baker cuts the cake into many pieces and sells it buy the piece each piece comes at a price in accordance with the amount you pay a proportionate amount of the cake is then owned by you the number of units that an investor can buy depends upon two factors the any view of each unit and the total amount of investment ends the nav per unit of the scheme is the market value of securities less total recurring expenses of the scheme divided by the total number of units of the scheme on any particular date so if the nav is 15 rupees and the investor invests 15 thousand rupees in the scheme then he or she will be allotted one thousand units so basically net asset value is the current market value of one unit of the scheme take a piece of cake for example each piece of cake includes all the ingredients in various amounts each ingredient has a market value the combined market value of all the ingredients in the cake contributes to calculating the nav of the cake however it must be noted that this value keeps changing every day since market value of securities changes every day nav of a scheme also varies on a day to day basis mutual fund investments are subject to market risks read all scheme related documents and information carefully before investing

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