Financial literacy and more
There is complete transparency in a mutual fund,
The expenses that each fund incurs can be seen using a term called the expense ratio,
This is a figure expressed in percentage terms.
It represents the total cost that is incurred for managing and running the fund.
This figure is reduced from the NAV so it has already been adjusted in the funds returns.
Mutual funds are not free so investors need to understand this point.
There is a cost attached to investing using mutual funds but this is not too high.
Depending on the nature of the fund the cost can be anything from 0.1 per cent to 2.5 per cent.
This cost is per annum so it is an annual cost.
This is not a very high amount considering the services and benefits that are received using mutual funds,
Managing money is a full time job.
Many people do not have the time or even the expertise to do this for their money.
As against this investments professionals are trained in this matter,
Their full time job is to manage money and keep a track of what is happening to the investment.
This is the reason why entrusting mutual fund money to such professionals is likely to result in better management.
The Net Asset Value (NAV) can be calculated at any point.
Most funds usually declare their NAV at the end of each working day.
This is why the NAV is seen to change daily as there are changes in the numbers.
In reality the NAV changes as the value of the assets and liabilities of the fund changes.
In equity funds the NAV would thus be changing every few seconds.
The Net Asset Value (NAV) is the indicator of the growth in the fund.
This is the thing that investors track in their fund,
It directly translates into money for the investor so they follow it closely.
The way the NAV performs determines the returns for the investor.
All the ups and downs gives an idea about the journey of the fund.
The Net Asset Value (NAV) of a fund is a number with decimal places.
The decimal places are usually two but in some funds this can be upto 4 decimal places.
The NAV is always expressed per unit,
This shows how much a unit of the fund is actually worth.
A change in the NAV will determine the kind of return earned by the investor,
The total value of net assets in the fund has no meaning.
The total value can keep increasing if more investors keep putting money into the fund.
This does not mean that an investor is earning anything,
Dividing the total value by the total units present gives the value for each unit.
This is what investors want to know since they have units which they want to value.
A derivative is any instrument whose value rises from the value of some other investment,
In case of a mutual fund the value that it derives comes from the assets in its portfolio,
This is why many people also call mutual fund a derivative product,
Investors should understand that the change in value of a mutual fund is not on its own,
Only when the underlying investment changes in value the effect will be reflected in the mutual fund,