Okay so you are a beginner in investing right? You are planning to invest in mutual funds. Well, it is a good thing that you are thinking about saving. However, it is also important that you make sensible moves. A single mistake can land you in losses.
Well, before you go any further it would be good if you first understand what a mutual fund is. A mutual fund scheme is a shared fund that pools money from manifold investors and invests the collected quantity in stocks, short-term money-market instruments, bonds, other securities or assets, or a blend or combination of such investments. The investments are as per the investment objectives as revealed in offer document.
Similarly, an equity mutual fund scheme is going to invest predominantly in a set of stocks. It is based on the investment objective of the scheme and the equity fund manager could invest the pooled assets in a category of stocks relying on the market capitalisation or investment strategy of fund. For example, the fund could adopt a Value style or dividend yield style of investment. Certainly Equity mutual funds are popular and people are tending towards them for their investments. By the way remember that all mutual funds are needed to be approved by the market regulator – the Securities and Exchange Board of India (SEBI) before they can gather funds from the public.
How Equity Mutual Funds work?
Mutual funds issue units to the investors as per the quantum of money invested by them. Investors of mutual funds are called unitholders. The combined securities and assets the mutual fund possesses are called its portfolio that is managed by a qualified investment professional also called a fund manager. Each unit an investor holds signifies a part of the portfolio. The value of the units assist fluctuates with respect to the fundamental value of the portfolio. The value of every unit is signified by the Net Asset Value (NAV) of the fund.
The organisation that upkeeps the investments is termed as the Asset Management Company (AMC). The AMC includes or employ various employees in different roles who are accountable for servicing and managing investments. The AMC caters different products (schemes/funds) in mutual funds that are structured in a way to advantage and suit the requirement of investors’. Every type of scheme has a portfolio statement, revenue account and also balance sheet.
How does the Equity Mutual Fund NAV calculated?
In simple words, net asset value is the market value of securities held by the Equity Mutual Fund scheme. As market value of securities alters every day, NAV of the Equity Fund also differ on day-to-day basis. The NAV of the fund get used to judge its performance. NAV is the present market value of all the fund’s holdings, minus liabilities, and divided by the complete number of units.
Thus, since you have a good idea about mutual funds, equity funds and procedures; you can take your first step towards the world of investments.