What is a Unit in a Mutual Fund and How Does It Work?
![What is a Unit in a Mutual Fund and how does it work What is a Unit in a Mutual Fund and how does it work](/content/dam/Kotak/herosliderbanner/unit-mutual-fund-d.jpg)
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Mutual funds are a popular investment option that diversifies your portfolio across stocks, bonds, and other securities, spreading risk and potentially enhancing returns. A fundamental concept in mutual fund investments is the "unit." This article explores what are units in mutual funds, how they work, and their importance in investment strategies.
Introduction
Mutual funds divide their total assets into small, equal parts called units. When you invest in a mutual fund, you buy these units representing your share of the fund's holdings.
What is a Unit in a Mutual Fund?
A unit in a mutual fund is a portion of the total investment pool. When you invest in a mutual fund, you are allotted units based on the amount you invest and the fund's current Net Asset Value (NAV).
How Does a Mutual Fund Unit Price Work?
The price of a mutual fund unit is determined by the Net Asset Value (NAV). NAV is the per-unit market value of all the securities held by a mutual fund, minus any liabilities, divided by the total number of outstanding units.
NAV = Total Assets minus Total Liabilities divided by the Number of Units.
Things to Know About Mutual Fund Units
Investing in mutual fund units involves understanding several key aspects that impact the value and performance of your investment.
How to Purchase Mutual Fund Units?
Mutual fund units can be purchased through various methods, each catering to different investment preferences and financial goals.
Difference Between Equity Shares and Mutual Fund Units
While equity shares and mutual fund units represent ownership, they differ significantly in structure, risk, and returns.
Conclusion
Understanding what units are in mutual funds and how they work is fundamental to making informed investment decisions. Mutual fund units represent your share of the fund’s assets and play a crucial role in determining the value of your investment.
By knowing how NAV works, how to purchase units, and the differences between mutual fund units and equity shares, investors can optimise their investment strategies for better returns.
Frequently Asked Questions (FAQs)
Can Mutual Fund Units Be Transferred?
Yes, mutual fund units can be transferred to another person, typically through transmission or transfer, in case of the unit holder's demise or as per the terms of the mutual fund scheme.
How Mutual Fund Units Are Calculated?
Units are calculated by dividing the investment amount by the NAV on the date of purchase. For example, if you invest Rs 10,000 and the NAV is Rs 50, you will receive 200 units.
How To Redeem Mutual Fund Units?
To redeem mutual fund units, submit a redemption request to the fund house or through an online platform. The units will be redeemed at the NAV on the redemption date, and the proceeds will be credited to your bank account.
What is the Per Unit Value of a Mutual Fund?
The per-unit value of a mutual fund is its NAV, which is calculated by dividing the fund's total net assets by the total number of outstanding units.
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