Understanding The Concept Of Mutual Funds

Understanding The Concept Of Mutual Funds

There is a simple formula that is used to calculate Net Asset value. It is denoted as assets – liabilities/ no. of shares. This is one of the most used formulas of NAV. This is an important tool to understand the concept of Mutual funds. As it would help the investors to understand whether to invest in mutual funds today or wait for the market to fluctuate. Most of investors invest when the market goes down as it helps the investors to buy some units and when the Sensex goes up, it helps them to gain profit.

What is the importance of NAV?

There are many points that tell the investors about the importance of Net Asset Value. Some of them are as follows;

It is not only used to understand the value of a fund, in which investors are going to invest. But it also tells the value of the project in the coming years.

It tells the number of units an investor is having with him or her

It also helps to understand whether it is the right time to invest or to redeem the fund. Investors redeem the funds when they have good growth in the NAV of the fund.

Every business whether it is real estate or any other business needs to assess its financial statement and NAV.

Why invest in mutual funds apart from other assets?

When people about investing in assets then the first thing that comes to mind is building, machinery or furniture. But today the value of buildings and properties is reducing due to the non-availability of funds to the builders which lessens the demand for property as well. Another in which people invest in an INR. But the car is an Asset whose value goes down as it comes out of the showroom.

But if someone invests in a mutual fund at the right time and in the right fund then the investors can build their asset not physically but in terms of money value. 

Mutual funds have some categories;

Equity-oriented Mutual funds– These are the funds that are directly invested in the share market. Equity-oriented funds have the most risk as it is directly linked to nifty and Sensex and go parallel to it.

Debt-oriented Mutual fund– In this fund investment is made in government bonds, commercial papers, etc. These are the most conservative funds which have less risk with fewer returns.

Most people only believe in investing their money in Fixed deposits. But when it comes to returning it has 20 to 30 per cent less return than the debt mutual fund as well and more than 50% less return than the equity mutual fund, if the market goes well. Fixed deposits are not a good product to invest in for the people who are in the highest tax frame because if inflation and TDS are deducted from the fixed deposits which gives is lesser return than the nav of the debt mutual fund. But if we apply the formula of nav to calculate liquid funds its return would be better than the fixed deposits.

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