{"id":24392,"date":"2022-05-30T14:57:31","date_gmt":"2022-05-30T14:57:31","guid":{"rendered":"https:\/\/www.5paisa.com\/finschool\/?post_type=markets&#038;p=24392"},"modified":"2026-10-19T11:30:08","modified_gmt":"2026-10-19T06:00:08","slug":"concept-of-fund-and-nav","status":"publish","type":"markets","link":"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/concept-of-fund-and-nav\/","title":{"rendered":"Concept of Fund and NAV"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"24392\" class=\"elementor elementor-24392\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-080cd05 elementor-section-full_width tab_container elementor-section-height-default elementor-section-height-default\" data-id=\"080cd05\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-77d05b8\" data-id=\"77d05b8\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-inner-section elementor-element elementor-element-cc68b76 elementor-section-full_width elementor-section-height-default elementor-section-height-default\" data-id=\"cc68b76\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-wide\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-50 elementor-inner-column elementor-element elementor-element-7739e19 chapters_list\" data-id=\"7739e19\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-89bc366 elementor-widget elementor-widget-shortcode\" data-id=\"89bc366\" data-element_type=\"widget\" data-widget_type=\"shortcode.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"elementor-shortcode\">\t<script>\n\t\tjQuery(document).ready(function(){\n\t\t\tjQuery(\"#post_chapters a[href*='\" + location.pathname + \"']\")\n\t\t\t\t.addClass(\"current\")\n\t\t\t\t.attr(\"aria-current\", \"page\");\n\t\t})\n\t<\/script>\n\t<div class=\"desktop_chapters\"><div id=\"post_chapters\"><div class=\"post_chapters-heading\">Chapters<\/div><ul><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/background-and-orientation\/\">Background and Orientation<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/personal-finance-math\/\">Personal Finance Math<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/money-today-vs-money-tommorrow\/\">Money Today vs Money Tommorrow<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/the-retirement-part-1\/\">The Retirement -Part 1<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/assumptions-in-retirement-planning\/\">Assumptions in Retirement Planning<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/understanding-stock-funds\/\">The Role of Mutual Funds in Modern Finance<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/concept-of-fund-and-nav\/\">Concept of Fund and NAV<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/understanding-the-performance-of-your-fund\/\">Mutual Fund Factsheet<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/the-equity-scheme\/\"> The Equity Scheme<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/equity-scheme-part-2\/\">Equity Scheme Part 2<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/debt-funds-part-1\/\">Debt Funds Part 1<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/monitoring-your-portfolio\/\">Debt Funds Part 2<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/debt-funds-part-3\/\">Debt Funds Part 3<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/debt-funds-part-4\/\">Debt Funds Part 4<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/investing-in-bonds\/\">Investing in Bonds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/index-funds\/\">Index Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/arbitrage-funds\/\">Arbitrage Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/measuring-mutual-fund-returns\/\">Measuring Mutual Fund Returns<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/rolling-returns\/\">Rolling Returns<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-expense-ratio\/\">Mutual Fund Expense Ratio<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-benchmarking\/\">Mutual Fund Benchmarking<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-beta-sd-and-sharpe-ratio\/\">Mutual Fund Beta SD and Sharpe Ratio<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/sortino-and-capture-ratios\/\">Sortino and Capture Ratios<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/how-to-analyse-equity-mutual-funds\/\">How to Analyse Equity Mutual Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/how-to-analyse-debt-mutual-fund\/\">How to Analyse Debt Mutual Fund<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-portfolio\/\">Mutual Fund Portfolio<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/smart-beta-funds\/\">Smart Beta Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/asset-allocation\/\">Asset Allocation<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/exchange-traded-funds\/\">Exchange Traded Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/basics-of-macro-economics\/\">Basics of Macro Economics<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/personal-finance-part-1\/\">Personal Finance-Part 1<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/personal-finance-review-part-2\/\">Personal Finance Review Part 2 <\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/know-your-funds\/\">Know Your Funds<\/a><\/li><\/ul><\/div><\/div><div class=\"chapters_toggle\"><a href=\"#\" id=\"open_chapters\" aria-label=\"View chapters\"><span>View Chapters<\/span>&nbsp;&nbsp;&nbsp;<i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i><\/a><a href=\"#\" id=\"close_chapters\" style=\"display:none;\" 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class=\"clearfix eael-tab-content-item active-default\" data-title-link=\"study-tab\">\n\t\t\t\t        <p><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash='The-Family-Pot-A-Different-Take' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>7.1 <\/strong><b style=\"font-weight: bold\">The Family Pot \u2013 A Different Take<\/b><\/h2>\r\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-77836 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Family-Pot.png\" alt=\"The Family Pot\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Family-Pot.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Family-Pot-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Family-Pot-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Family-Pot-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Family-Pot-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Family-Pot-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Family-Pot-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Family-Pot-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>When people first hear the word fund\u00a0in the context of mutual funds, they often imagine something abstract or complicated. But at its core, a fund is simply a pool of money collected from different people, managed together for a common investment purpose. To make this idea more relatable, let\u2019s build a new story.<\/p>\r\n<p>Imagine you are the \u201cfinance go-to person\u201d in your extended family. Instead of stock market fame, let\u2019s say you\u2019ve built a reputation for being disciplined with money. You\u2019ve chosen the right insurance policies, invested in fixed deposits at the right time, and even guided a cousin to buy gold just before prices shot up. Word spreads quickly, and soon your relatives begin to trust your judgment.<\/p>\r\n<p>One day, your family members approach you with a request:<\/p>\r\n<p>\u201cWhy don\u2019t you manage our savings? You seem to know how to make money grow.\u201d<\/p>\r\n<p>Now, legally speaking, you can\u2019t just start pooling and managing other people\u2019s money. In India, a mutual fund must be registered with SEBI under the SEBI (Mutual Funds) Regulations, 2026, which replaced the earlier 1996 Regulations with effect from 1 April 2026. It is set up as a trust by a sponsor, overseen by trustees, and its money is managed by a SEBI-approved Asset Management Company (AMC). Anyone who sells or distributes mutual fund units must also hold the required NISM certification (NISM Series V-A) and be registered with AMFI. So, let\u2019s assume you go through this entire process, set up a SEBI-registered mutual fund, and become its fund manager.<\/p>\r\n<p><strong><b>Pooling the Money<\/b><\/strong><\/p>\r\n<p>Your relatives hand over different amounts: your uncle gives \u20b91,00,000, your cousin contributes \u20b925,000, and your aunt adds \u20b91,50,000. Altogether, you collect \u20b92,75,000. Instead of keeping each person\u2019s money in separate accounts, you decide to pool it into one common account. This pooled money is what you will use to buy stocks, bonds, or other investments.<\/p>\r\n<p>Think of it like a community kitchen. Everyone contributes ingredients \u2014 rice, vegetables, spices \u2014 in varying quantities. Once pooled together, the cook prepares a single dish that everyone shares. The taste of the dish is the same for all, regardless of how much each person contributed. Similarly, in a mutual fund, the returns generated from the pooled investments are shared proportionately among all investors.<\/p>\r\n<p><strong><b>Fairness in Returns, Flexibility in Service<\/b><\/strong><\/p>\r\n<p>Here\u2019s an important principle: while the level of personal attention investors receive may vary, you cannot treat them differently in terms of returns. Every investor in the same scheme, plan and option must earn the same percentage return for the same holding period.<\/p>\r\n<p>For example, your aunt who invested the largest amount might get special attention \u2014 perhaps you invite her for coffee when she visits. Your younger cousin who invested a smaller amount may not get the same hospitality. That\u2019s acceptable. But when it comes to investment performance, both must receive the same percentage return.<\/p>\r\n<p>To illustrate, imagine two passengers on the same train. One is traveling in first class, enjoying cushioned seats and air-conditioning. The other is in second class, with simpler seating. The service differs, but the train itself moves at the same speed. Both passengers reach the destination at the same time. In mutual funds, the \u201cdestination\u201d is the return generated by the portfolio, and it must be identical in percentage terms for all investors.<\/p>\r\n<p>Think of two people watching the same movie in a cinema. One buys a premium recliner seat with free popcorn, while the other sits in a regular seat. The comfort differs, but the movie on the screen is identical for both. In mutual funds, investors may get different levels of service depending on how much they invest, but the percentage return\u00a0\u2014 the \u201cmovie experience\u201d \u2014 is the same for all.<\/p>\r\n<p>One important nuance: since 1 January 2013, SEBI has required every mutual fund scheme to offer two plans \u2014 a Direct Plan\u00a0 and a Regular Plan. The Regular Plan includes distributor commission in its expense ratio, so it has a slightly higher Total Expense Ratio\u00a0 and therefore a different, usually lower, NAV than the Direct Plan. Similarly, the Growth and IDCW options within a plan have different NAVs because one reinvests income and the other pays it out. The equal-return principle applies to all investors within the same plan and option; it is the plan\u2019s cost structure, not the size of an individual\u2019s investment, that causes the difference.<\/p>\r\n<p><strong><b>Why It\u2019s Called \u201cMutual\u201d<\/b><\/strong><\/p>\r\n<p>The pooling of money is the essence of why these are called mutual\u00a0funds. The account doesn\u2019t belong to one person alone; it belongs to everyone who contributed. Each investor owns \u201cunits\u201d of the fund, which represent their share in the collective pool.<\/p>\r\n<p>Think of a housing society. Every resident pays maintenance fees, and the society uses that pooled money to maintain the building, pay for security, and keep the lights on. No single resident can claim ownership of the society\u2019s funds \u2014 it\u2019s mutual, meant for the benefit of all. Mutual funds work in much the same way, except the pooled money is invested in financial markets.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash='The-Fund-in-Action' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong><b>7.2 The Fund in Action<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77837 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Fund-in-Action.png\" alt=\"The Fund in Action\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Fund-in-Action.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Fund-in-Action-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Fund-in-Action-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Fund-in-Action-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Fund-in-Action-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Fund-in-Action-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Fund-in-Action-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/The-Fund-in-Action-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>Example: \u00a0five friends decide to start a small investment club called <strong><b>\u201cGrowth Circle.\u201d<\/b><\/strong>\u00a0Each contributes different amounts to build a common pool of money that will be invested in the stock market.<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Member<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Notional Value per Unit (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Number of Units<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Amount (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Ramesh<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>10<\/p>\r\n<\/td>\r\n<td>\r\n<p>6,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>65,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Meena<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>10<\/p>\r\n<\/td>\r\n<td>\r\n<p>10,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>1,00,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Arjun<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>10<\/p>\r\n<\/td>\r\n<td>\r\n<p>5,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>50,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Kavita<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>10<\/p>\r\n<\/td>\r\n<td>\r\n<p>3,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>35,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Neel<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>10<\/p>\r\n<\/td>\r\n<td>\r\n<p>2,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>25,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Total<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>\u00a0<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>27,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>2,75,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>Each \u20b910 unit represents a slice of the total fund. The total corpus is \u20b92,75,000, divided into 27,500 units. (In a mutual fund, investors hold units, not shares.)<\/p>\r\n<p><strong><b>The Manager\u2019s Role<\/b><\/strong><\/p>\r\n<p>As the fund manager, you\u2019re responsible for investing this \u20b92,75,000 wisely. You decide to spread it evenly across ten different companies\u00a0\u2014 a strategy known as an equally weighted portfolio.<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Stock<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Investment (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Alpha Motors<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Zenith Pharma<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>GreenTech Energy<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Oceanic Foods<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Stellar Finance<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Urban Realty<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Nova Textiles<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Horizon IT<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Coral Paints<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Titan Metals<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>27,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Total<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>2,75,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Day 2 \u2013 Market Movement<\/b><\/strong><\/p>\r\n<p>The next day, the market fluctuates. Some stocks rise, others fall. After recalculating (and ignoring expenses for simplicity), the total value of the portfolio becomes \u20b92,77,844 \u2014 a gain of \u20b92,844.<\/p>\r\n<p>The fund\u2019s return is:<\/p>\r\n<p>Return\u00a0 = 2,844\/2,75,000 *100 =1.0342%<\/p>\r\n<p>This means the fund grew by 1.0342%\u00a0in a single day.<\/p>\r\n<p><strong><b>Adjusting the Notional Value<\/b><\/strong><\/p>\r\n<p>To ensure every investor experiences the same percentage gain, the notional value per unit\u00a0must increase by the same rate. This updated per-unit value is the fund\u2019s Net Asset Value (NAV).<\/p>\r\n<p>New Notional Value =10 * (1+0.010342)=10.10342<\/p>\r\n<p>Now, each investor\u2019s holdings are recalculated using this new value.<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Member<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Units<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>New Notional Value (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>New Investment Value (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Ramesh<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>6,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>10.1034<\/p>\r\n<\/td>\r\n<td>\r\n<p>65,672<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Meena<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>10,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>10.1034<\/p>\r\n<\/td>\r\n<td>\r\n<p>1,01,034<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Arjun<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>5,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>10.1034<\/p>\r\n<\/td>\r\n<td>\r\n<p>50,517<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Kavita<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>3,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>10.1034<\/p>\r\n<\/td>\r\n<td>\r\n<p>35,362<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Neel<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>2,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>10.1034<\/p>\r\n<\/td>\r\n<td>\r\n<p>25,259<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Total<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>27,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>&nbsp;<\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>2,77,844<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>(The individual values add up to \u20b92,77,843.50 before rounding, which matches the portfolio value of \u20b92,77,844.) Notice how everyone\u2019s investment grew by the same percentage, even though their absolute gains differ. This is the beauty of uniform wealth creation\u00a0\u2014 fairness through proportional returns.<\/p>\r\n<p><strong><b>Day 3 \u2013 A New Investor Joins<\/b><\/strong><\/p>\r\n<p>Suppose your father-in-law wants to invest \u20b975,000 on Day 3.<\/p>\r\n<p>Should you issue units at \u20b910 or \u20b910.1034?<\/p>\r\n<p>He certainly cannot get units at \u20b910, because the fund\u2019s value has already appreciated but strictly speaking he will not get \u20b910.1034 either. Mutual funds use forward pricing: new investors buy units at the applicable NAV\u00a0 the closing NAV of the day on which the application is received before the cut-off time and the money is available to the scheme. Since Day 3\u2019s NAV is calculated only after the market closes, he will not know his exact purchase price in advance. This ensures fairness\u00a0 no one gets an undue advantage by entering at outdated, already-known prices.<\/p>\r\n<p>Under current SEBI rules, for equity and debt schemes the cut-off time for purchases is 3:00 p.m.; units are allotted at the NAV of the day the funds are realised in the scheme\u2019s bank account before the cut-off, regardless of the investment amount. For liquid and overnight funds, the cut-off is 1:30 p.m. and the NAV of the day before the funds are realised applies. There is no entry load , but a stamp duty of 0.005% applies on purchases since 1 July 2020.<\/p>\r\n<p>For example, if Day 3\u2019s NAV also turned out to be \u20b910.1034, the stamp duty on \u20b975,000 would be \u20b93.75, and your father-in-law would be allotted \u20b974,996.25 \u00f7 10.1034 \u2248 7,422.872 units.<\/p>\r\n<p><strong><b>Key Takeaways<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Concept<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Explanation<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Pooling of funds<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Investors combine their money to form a single investment vehicle.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Equal treatment<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Every investor in the same scheme, plan and option earns the same percentage return over the same period, regardless of investment size.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Notional value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>The starting per-unit value assigned when the fund is launched (typically \u20b910 per unit during the New Fund Offer).<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>NAV<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>The per-unit value of the fund, calculated at the end of every business day: the market value of its assets plus accrued income, minus its liabilities and accrued expenses, divided by the units outstanding.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>NAV formula<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>NAV = Total Assets-Total liabilities (incl.expenses)\/Number of units outstanding<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>In essence, a mutual fund is a collective journey\u00a0\u2014 different people, one goal: wealth creation through disciplined investing. The NAV acts as the compass, ensuring everyone moves forward at the same pace, no matter how much they contribute.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = jQuery('#text_slider');\n\t\tjQuery('.text_slider_goto1').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 0);\n\t\t});\n\t\tjQuery('.text_slider_goto2').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 1);\n\t\t});\n\t\tvar resize_24080 = jQuery('.owl-carousel');\n\t\tresize_24080.on('initialized.owl.carousel', function(e) {\n\t\t\tif (typeof(Event) === 'function') {\n\t\t\t\twindow.dispatchEvent(new Event('resize'));\n\t\t\t} else {\n\t\t\t\tvar evt = window.document.createEvent('UIEvents');\n\t\t\t\tevt.initUIEvent('resize', true, false, window, 0);\n\t\t\t\twindow.dispatchEvent(evt);\n\t\t\t}\n\t\t});\n\t});\n<\/script>\n<\/p>                    <\/div>\n\t\t        \n                    <div id=\"slides-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"slides-tab\">\n\t\t\t\t        <p><img decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png\" \/><\/p>                    <\/div>\n\t\t        \n                    <div id=\"videos-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"videos-tab\">\n\t\t\t\t        <p><img decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png\" \/><\/p>                    <\/div>\n\t\t                    <\/div>\n        <\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Study Slides Videos 7.1 Understanding Style Box Most of us wouldn\u00e2\u20ac\u2122t buy a new home just because it looked good from the outside. We would do a thorough walk-through first. We\u00e2\u20ac\u2122d examine the furnace, check for a leaky roof, and look for cracks in the foundation. Mutual fund investing requires the same careful investigation. You &#8230; <a title=\"Concept of Fund and NAV\" class=\"read-more\" href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/concept-of-fund-and-nav\/\" aria-label=\"Read more about Concept of Fund and NAV\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":11088,"menu_order":7,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"class_list":["post-24392","markets","type-markets","status-publish","format-standard","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/24392","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets"}],"about":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/types\/markets"}],"author":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/comments?post=24392"}],"version-history":[{"count":14,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/24392\/revisions"}],"predecessor-version":[{"id":77838,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/24392\/revisions\/77838"}],"up":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/11088"}],"wp:attachment":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/media?parent=24392"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/categories?post=24392"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}