What is a Mutual Fund?A mutual fund pools the money of people with similar investment goals. This money in turn is invested in various securities depending on the objectives of the mutual fund scheme, and the profits (or loss) are shared among investors in proportion to their investments.
Mutual fund schemes are open ended (perpetually open for investments and redemptions) or closed ended (with a fixed term). Most of the mutual funds are open ended in nature. The mutual fund scheme issues units that are normally priced at Rs.10 during the initial offer. Thus, the number of units you own as against the total number of units issued by the mutual fund scheme determines your share in the profits or loss of a scheme.
In the case of open-ended schemes, units can be purchased from or sold back to the fund at a Net Asset Value (NAV) based price on all business days.
The NAV is the actual value of a unit of the fund on a given day. Thus, when you invest in a mutual fund scheme, you normally get an account statement mentioning the number of units that have been allotted to you and the NAV based price at which the units have been allotted. The account statement is similar to your bank passbookï¿½when you buy more units or redeem your units in part or full, you get an updated account statement, reflecting your transaction.
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