Let’s understand Mutual Funds units through an analogy. Owning units in Mutual Funds is like having slices of a large pizza. Investing in a Mutual Fund is like pooling your money with other investors' to buy a whole pizza—you're buying a diverse portfolio of stocks, bonds, or commodities like gold. A piece of that pizza is equivalent to each share of the Mutual Fund. The value of the pizza as a whole, which varies based on the performance of its underlying instruments, determines the value of your slice.
What is a mutual fund unit?
A mutual fund unit is a measure of ownership in a mutual fund, similar to a share in a company. When you invest in a mutual fund, it is converted into units based on the fund's net asset value (NAV) at the time of purchase. As the value of the fund’s assets fluctuates, the NAV, and consequently, the value of each unit, changes.
How do mutual fund units work?
1. Investing
When you put money into a Mutual Fund, the current NAV is used to figure out how many units you get for that amount. For example, if you invest ₹1,000 in a mutual fund with an NAV of ₹50, you will receive 20 units (1,000/50 = 20).
2. Valuation and NAV calculation
The NAV is calculated by taking the total market value of all the assets in the fund's portfolio, subtracting any liabilities, and then dividing it by the number of outstanding units. This NAV is updated daily to reflect the latest market values.
3. Buying and selling units
Units can be bought and sold at the NAV. When you buy additional units, the amount you invest is converted into units based on the current NAV. Similarly, when you sell units, you receive the value based on the current NAV.
How to purchase mutual fund units?
You can invest in mutual fund units through online platforms, registered distributors or directly from a fund house. There are two ways to invest in mutual funds -
- Systematic Investment Plans (SIP): An SIP allows you to put in a fixed amount regularly in mutual fund units. This helps in averaging the cost of units over time, reducing the impact of market risks.
- Lump sum investment: You can make a one-time payment to buy mutual fund units. This is suitable if you have a large sum of money to invest and are confident about the market's direction.
Also Read: How to invest in Mutual Funds in 7 easy ways
Conclusion
Understanding mutual fund units is fundamental for anyone looking to invest in mutual funds. Whether you are looking to grow your wealth over time or generate regular income, mutual fund units help you understand your investment options better.
Axis Bank offers a host of mutual funds to choose from. Make wise decisions that align with your financial goals and risk tolerance and watch your money grow. Start exploring mutual fund units today and take a significant step towards achieving your investment goals.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.financial decision.
