A mutual fund is an investment that allows a group of investors (sharing common financial goals) to pool their money and hire a fund manager. The manager invests this money (the fund's assets) in stocks, bonds or other investment securities (or a combination of stocks, bonds and securities). The fund manager then continues to buy and sell stocks and securities according to the style dictated by the fund's prospectus.
Since the stated investment objectives of a mutual fund scheme generally forms the basis for an investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated objectives at any point of time.
Every Mutual Fund is managed by a fund manager, who using his investment management skills and necessary research works ensures much better return than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own.
Mutual Fund investor is also known as a mutual fund shareholder or a unit holder.
In a mutual fund, the value of your shares goes up and down as the value of the stocks and bonds in the fund rise and fall.
Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.
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