A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What is net asset value (NAV)?
The performance of a particular mutual fund scheme is indicated by its net asset value (NAV). Put simply, NAV is the market value of securities held by the regime. Mutual funds invest money raised by investors in securities markets. As the market value of securities changes daily, the NAV of a scheme also changes daily. The NAV per unit is the market value of securities under a scheme divided by the total number of units of the scheme on a given date.
The video on the left explains how NAV is calculated.
The NAVs of all mutual fund schemes are declared at the end of the trading day after the markets close, in accordance with the SEBI mutual fund regulations.