How do Mutual Funds work?

🔹 Factsheet

It comprises details on the different schemes offered by an AMC. The factsheet also contains information about the fund manager, investment objective, performance, key ratios, and portfolio holdings. This data is beneficial to monitor and review investments at regular intervals.

🔹 Net asset value (NAV)

It is the actual value of the fund on a particular day and helps investors understand its performance. The NAV is calculated by decreasing the value of the liabilities from the total assets and dividing it by the outstanding units.

NAV = (Total Assets – Total Liabilities) / Number of outstanding units

How Do Mutual Funds Work?

🔸 Pooled investor capital

Every mutual fund scheme is launched via a New Fund Offering (NFO). During the NFO, the units are available at INR 10. After the NFO, open-ended schemes can be purchased and sold on any working day at its current NAV. Investors can liquidate their investments in close-ended schemes only on maturity or via the stock exchange as these are compulsorily listed. Investors can choose mutual fund schemes based on their risk appetite, investment horizon, and financial objectives.

🔸 Transaction processing

Mutual fund transactions are processed as per the guidelines prescribed by the Securities and Exchange Board of India (SEBI). The transactions are processed at the prevailing NAV on the same day. Any intimation received after the SEBI-prescribed cut-off timings are processed on the next business day.

🔸 Transaction processing

Mutual fund transactions are processed as per the guidelines prescribed by the Securities and Exchange Board of India (SEBI). The transactions are processed at the prevailing NAV on the same day. Any intimation received after the SEBI-prescribed cut-off timings are processed on the next business day.

🔸 Building an investment portfolio

The pooled capital received from mutual fund investors must be deployed in different investment options as per the scheme’s disclosure and objectives. An equity fund primarily in equities and related instruments while debt funds invest a majority of the funds in fixed-income securities. Hybrid funds invest the pooled capital in both debt and equity instruments. The fund managers and their teams create a diversified portfolio compromising different instruments as per the scheme’s investment objectives. A certain amount of the pooled capital is invested in liquid assets to meet any redemption requests.

🔸 Fund management

The funds’ portfolios are managed by a fund manager and a team of research analysts. The investment team not only invests the pooled capital but is also responsible for regularly monitoring and reviewing the portfolio. The capital is churned and switched between different assets based on the research, ratings, changes in the macroeconomic factors, regulatory and statutory modifications, and others. The investment team considers several factors while making their decisions based on analyst meetings, financial results, management discussions, and regulatory disclosures.

Every AMC offers multiple mutual fund schemes and choosing the right option may be confusing for investors. Our team of experienced experts can help investors find the most beneficial mutual fund investments. Visit our website to start your investment journey today.