Reasons Why Mutual Funds Is Getting Popular In The Past Decade In India.

Table of Contents

What is a Mutual Fund?

In simple terms, a Mutual Funds is a professionally managed investment fund that pools money from many investors and invests the money different financial securities like stocks, bonds etc. in accordance with objectives as disclosed in offer document. Each investor in a mutual fund owns units of the fund at the current net asset value (NAV), which represents a portion of the holdings of the mutual fund. As the value of securities held by the mutual fund increases or decreases, so will the price of the units.

For instance, lets assume four friends decides to buy a medium pizza of 8 pieces which is costing Rs. 400. Each of them contributes Rs. 100 and gets 2 piece of pizza. What is the cost of one unit or NAV? Answer is very simple, Rs. 400 (Total Investment) / 8 (Different Financial Securities) = Rs. 50 (Net Asset Value).

What is NAV?

NAV per Unit represents the market value of all the Units in a mutual fund scheme on a given day plus other assets; less liabilities divided by number of outstanding units. Since the market value of securities changes every day, the NAV of a scheme also varies on day-to-day basis. All mutual fund units are sold and bought at the NAV of the mutual fund. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.

Advantages and Benefits that drive investors to invest in Mutual Fund.

Investing in Mutual Fund is popular because of the benefits they provide. Few of them are listed below:

  • Professionally Managed Fund by Fund Managers
  • Diversified Portfolio
  • Low cost investment

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