What is a Mutual Fund?

July 9th, 2025 General Blog
What is a Mutual Fund?

What is Mutual Fund?

If you are not able to analyze the stock market, if you do not understand anything about the market, not possible to be updated with the News, but if you have to invest in the stock market and earn a profit then you are here in the right place. we have multiple options to come from this problem some of the is Mutual Funds, SIPs, ETFs etc.

In the previous article, we gave information about the history of mutual funds, how the concept arose in America, and how India has grown up in the field of the mutual funds market. In this article, we will see information about what is a mutual fund. and how mutual funds work.

Definition of Mutual fund:

A Mutual fund is a financial product that pools money from multiple investors to create a large fund that is managed by professional fund managers. This pooled money is then used to invest in various securities, such as stocks, bonds, and other assets, depending on the fund's objectives. By pooling resources, mutual funds allow investors to diversify their investments, reducing the risk of loss and providing opportunities to earn returns from a broad spectrum of investments.

Mutual Fund Unit:

A mutual fund unit is defined as it is some share of a mutual fund, a mutual fund might be an index fund, equity fund, or bond fund. the number of units you own represents some shares of a particular index fund.

Mutual fund unit prices are calculated based on the Net Asset Value (NAV) of the fund.

For example, if you invest ₹10,000 in a mutual fund and the NAV of the fund at the time of your investment is ₹100, you will receive 100 units (10,000 ÷ 100 = 100 units). If the NAV increases to ₹110, the value of your 100 units will rise to ₹11,000. On the other hand, if the NAV drops to ₹90, your 100 units will be worth ₹9,000. 

This example of NAV is given for understanding Mutual fund Units. Detailed information about NAV is given in the upcoming article.  

One more doubt that is generally present in common people is how mutual fund investments grow?

 Let’s say you decide to invest in a mutual fund. You contribute ₹1,00,000 to a mutual fund that focuses on Stocks, which is called an Equity fund. Along with the money from other investors, the fund manager pools all the contributions and buys shares in various stocks like Reliance, Infosys, HDFC bank etc.

If the stock market performs well and the value of these companies increases, the value of the mutual fund will also rise, and you will earn returns based on your share of the fund. Let’s say the fund grows by 10% over the year. Your ₹1,00,000 investment would then be worth ₹1,10,000. However, if the stock market faces a downturn, the value of the mutual fund could decline, and your investment can face losses.

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What is a Fund Manager?

A fund manager is a professional responsible for making investment decisions and managing the portfolio of a mutual fund, hedge fund, or other investment fund. Fund managers analyze market trends, economic data, and individual securities to decide how to allocate the fund’s capital to meet the fund's investment objectives. Their goal is to maximize returns for investors while managing risks based on the fund's strategy and risk profile.

Key Responsibilities of a Fund Manager:

  1. Asset Allocation

  2. Security Selection 

  3.  Adjusting the Portfolio

  4. Risk Management 

  5. Reporting and Communication

Conclusion:

Mutual funds have emerged as one of the best investment systems in the world. For a person who wants steady growth, capital buildup with a low-risk, mutual fund is best for the investment. Mutual funds offer diversification, professional management, and investment with low capital. Mutual funds make investing more accessible and less risky for people who may not have the time or expertise to manage their portfolios.

FAQ:
1. How are mutual funds different from stocks?

Ans: Stocks represent ownership of the company while mutual funds represent a diversification of portfolio Stocks are riskier than mutual funds.

2. can I redeem my mutual fund unit at any time?

Ans: yes, you can redeem mutual fund units at any time, but some funds have special criteria that apply some charges.

3. What are the risks of investing in mutual funds?

Ans: Due to the diversification of the portfolio, some sectors do not perform at that time we can face some losses.

4. Can I track my mutual fund performance?

Ans: Yes, almost all the fund managers provide a facility to check the performance of our mutual fund investment.

5. What is the minimum amount required to start a Mutual fund investment?

Ans: Most Mutual funds are allowed to invest from 500 Rs, but some MFs range is higher or lower than 500 Rs also.

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