Meaning - Mutual funds, Indian Financial system Video Lecture | Indian Financial System - B Com

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 the
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