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.
Mutual Fund Units
3 mins read

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.



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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