Mutual Fund Units

Explore mutual fund units and understand how they work. Learn how to invest in a diversified portfolio and track your holdings with ease.
EXPLORE FUNDS
Mutual Fund Units
EXPLORE FUNDS
3 mins read
5-Apr-2024

Mutual fund units are like the bricks of mutual funds. Knowing about mutual fund units is crucial if you're thinking about investing in mutual funds.

This article explains everything from the basics of mutual fund units to how they are priced and given out. It is written in a simple way to help you understand even if you are new to investing. Whether you are just starting out or want to know more about mutual funds, this guide will give you the information you need to feel confident about investing in mutual funds.

What is a unit in a mutual fund?

A unit of a mutual fund represents an investor's ownership in the mutual fund scheme. When you invest in a mutual fund, you essentially buy units of the fund. Each unit represents a portion of the total assets held by the mutual fund scheme. The value of each unit is determined by dividing the net asset value (NAV) of the mutual fund scheme by the total number of units outstanding.

For example, let us say a mutual fund scheme’s total assets minus any liabilities is Rs. 1,00,00,000 and there are 1,00,000 units outstanding. The net asset value (NAV) per unit would be Rs. 10 (Rs. 1,00,00,000 / 1,00,000 = Rs. 10). If you invest Rs. 10,000 in this mutual fund scheme, you would receive 1,000 units (Rs. 10,000 / Rs. 10 = 1,000 units).

As the value of the mutual fund's assets changes, so does the NAV per unit, reflecting the performance of the underlying investments. Investors can buy or sell units of the mutual fund based on the current NAV.

How does a mutual fund unit price work?

Understanding how mutual fund unit prices work is essential for investors. Each mutual fund is like a basket of different securities, and each unit represents a small part of that basket.

The value of a mutual fund is the total of all the securities it holds. So, the price of one unit is a fraction of that total value, determined by dividing the total value by the number of outstanding units.

This value per unit is called the Net Asset Value (NAV). It is calculated by subtracting any liabilities from the total value of assets and dividing by the number of unit-holders.

NAV Formula = (Total value of assets – Total value of liabilities)/Number of unit-holders.


For example, suppose the fund manager of XYZ Mutual Fund invests Rs. 15 lakh in stock A, Rs. 25 lakh in stock B, Rs. 5 lakh in corporate bonds, Rs. 30 lakh in government bonds, Rs. 10 lakh in stock C, Rs. 5 lakh in stock D, Rs. 8 lakh in cash derivatives, and Rs. 7 lakh in treasury bills. Additionally, the mutual fund carries a liability of Rs. 5 lakh.

Therefore, the total value of XYZ Mutual Fund would be Rs. (15 + 25 + 5 + 30 + 10 + 5 + 8 + 7 - 5) lakh, which equals Rs. 1 crore.

Now, let us say the number of holders are 1 lakh. So, the NAV of XYZ fund is equal to Rs. (1,00,00,000/1,00,000) or Rs. 100.

NAV is calculated at the end of each trading day, and it helps investors track the fund's performance over time.

Things to know about mutual fund units

  • Mutual fund units represent ownership stakes in the mutual fund portfolio.
  • The value of mutual fund units fluctuates based on the performance of the underlying securities.
  • Mutual fund units are priced based on the Net Asset Value (NAV) of the fund.
  • NAV is calculated by dividing the total value of the fund's assets minus liabilities by the number of outstanding units.
  • Investors can purchase or redeem mutual fund units at the NAV price.
  • Mutual fund units are offered in different classes, such as growth, dividend, each with its own fee structure and benefits.
  • Mutual fund units can be held directly through a fund company or indirectly through a brokerage account.

How to purchase mutual fund units?

  • Investors can purchase mutual fund units through various channels like online mutual fund platforms or brokers like the Bajaj Finserv Platform, Asset Management Companies or AMCs, or Registered Distributors.
  • They can invest either through lump sum investments or systematic investment plans (SIPs).

Difference between equity shares and mutual fund units

Equity shares represent ownership in a specific company, while mutual fund units represent ownership in a mutual fund scheme comprising various securities. Mutual fund units offer diversification and professional management, unlike equity shares, which are subject to individual company performance.

  Equity shares Mutual fund units
Ownership Represents ownership in a specific company. Represents ownership in a mutual fund portfolio.
Diversification Limited diversification, focused on one company. Offers diversified investment across various securities.
Risk Higher risk due to exposure to single company performance. Lower risk due to diversification across multiple securities.
Management No professional management, dependent on company's performance. Professionally managed by fund managers.
Volatility Subject to higher volatility based on company-specific factors. Subject to lower volatility due to diversified portfolio.
Dividends Receive dividends declared by the company. Receive dividends distributed by the mutual fund if you invest in IDCW plan.

 

Conclusion

Understanding mutual fund units is essential for investors as these units represent ownership stakes in the mutual fund portfolio and their value fluctuates based on the performance of the underlying securities. With various classes of mutual fund available, investors have options to suit their financial goals and risk tolerance. By understanding the fundamentals of mutual fund units, investors can make informed decisions and effectively manage their investment portfolios.

Frequently asked questions

How to redeem mutual fund units?
Mutual fund units can be redeemed by submitting a redemption request to the mutual fund house or through online platforms, receiving the redemption amount as per the prevailing NAV.
How units are allocated in mutual funds?
Units in mutual funds are allocated to investors based on the amount invested and the NAV at the time of investment, with each unit representing a share of the fund's assets.
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Disclaimer

Bajaj Finance Limited (“BFL”) is a Non-Banking Financial Company carrying the business of acceptance of deposits, providing lending solutions to Retail & Corporate customers, and is a Corporate agent of various insurance Companies. BFL is also registered with the Association of Mutual Funds in India (“AMFI”) as a distributor of third party Mutual Funds (shortly referred as ‘Mutual Funds’).

BFL does NOT:

(i) provide investment advisory services in any manner or form;

(ii) perform risk profiling of the investor;

(iii) carry customized/personalized suitability assessment;

(iv) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.


In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on ‘As-is’ basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme /Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities. The NAV will inter-alia be exposed to Price / Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other / better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Bajaj Finserv Direct Limited, (“BFDL”), a wholly owned subsidiary of Bajaj Finserv Limited (is a Registered with SEBI as an Investment Advisor with Registration no. INA000016083). BFDL enables resident Indian customers to directly invest in third party mutual funds through its online platform. BFDL entered into a referral arrangement with BFL, whereunder, BFL may, without risk or responsibility on its part, refer the resident Indian customers who are interested in placing their investments in Direct Mutual Funds through BFDL online platform. Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc. and shall also consult their financial advisers, if they are unsure about the suitability of the scheme before investing