Mutual Fund: Overview  

As the name implies, mutual funds are funds that are raised and invested mutually, i.e. on behalf of everyone participating in the mutual fund scheme. If you are apprehensive of investing in the stock market because of its somewhat unpredictable fluctuations, mutual funds can a safe bet.
Thus mutual fund is a financial instrument using which an investor can indirectly invest in equities or debt instruments. A mutual fund takes the contributions of a large number of investors. It then appoints professional managers to invest this common pool or corpus of funds in accordance with the predefined objectives of the mutual fund. The corpus is jointly owned - the fund belongs to all investors; and its investment purpose is mutual, i.e., common for all investors; hence the name, mutual fund.
Investors receive units of the mutual fund in proportion to the money they have put in. Initially, the units issued have a face value of Rs 10 each. Later, as the corpus is invested and the value of the investments changes, the value of each unit changes proportionately. The value of each unit is also impacted when management fees and other expenses are deducted from the overall pool of funds.
The value of a unit is called the Net Asset Value (NAV) of the mutual fund. It changes on a daily basis. Net assets on the other hand would mean the current market price of all investments held plus cash and any accrued income, minus liabilities.Mathematically,NAVnonce= (Market value of the fund's investments + Current assets + Accrued income) - Current Liabilities - Accrued Expenses / (Total Number of units outstanding) Investors who wish to purchase or sell units of a mutual fund after the scheme is fully functional must do so at a price that is linked to the NAV.