How Mutual Funds Work
Lesson 1 of 5 in Mutual Funds & SIP Mastery · 9 min read
A mutual fund pools money from many investors and invests it according to a defined objective.
Units and NAV
When you invest, you buy units. The Net Asset Value (NAV) is the value of one unit, calculated daily from the fund's holdings minus expenses.
Who runs it
An Asset Management Company (AMC) manages the scheme, a trustee oversees it, and a custodian holds the securities. Mutual funds in India are regulated by SEBI.
Direct vs regular plans
The same scheme comes in two versions. A regular plan includes distributor commission in its expense ratio; a direct plan does not, so its expense ratio is lower.
Open-ended vs closed-ended
Most funds are open-ended and allow purchase and redemption on any business day. Closed-ended funds have fixed maturity dates.
Key takeaways
- A fund pools money and invests per a stated mandate
- NAV is the per-unit value of the fund
- Direct and regular plans differ in costs