Mutual funds are a mechanism for pooling money from a member of an investor by issuing units to them and investing the pooled money in various stocks, shares, bonds, and other money market instruments in accordance with the objectives as disclosed in the offer document of the Fund.
The pooled money is invested in various securities like stocks, shares, bonds, and money market instruments of different sectors of different types of industries. The reason being that every Industry/Sector doesn't move in the same path together. This gives diversification to the investors meaning that if one Sector/Industry is not doing well for the time being, then the other Industry/Sector will support the fund performance. Hence giving the investor a high amount of diversification and safety.
Mutual Funds issue units to the investors in accordance with the amount of money invested by them. Thus Investors of Mutual Funds are known as Unit Holders.
A Mutual Fund is required to be registered with the Securities and Exchange Board of India (SEBI) before it can collect money from Investors.
The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).NAV is the market value of the securities held by a scheme. Since the market value of securities changes every day, the NAV of a scheme also varies on day to day basis. The NAV (Net Asset Value) of the funds is calculated for 365 days, unlike other debt mutual funds where NAV is computed for business days only.
