Financial literacy and more
The value of a mutual fund is known through its Net Asset Value (NAV)
In simple words this is what the mutual fund is worth for an investor,
The changes in the value of its portfolio is reflected through the changes in the NAV.
The NAV has to be multiplied by the units that are held by the investor to get the value of the holding.
The NAV is calculated every working day so this is available for the investor,
An assumption is that mutual funds just invest in equities but this is not correct.
Mutual funds can have access to any kind of asset class.
There are mutual funds that invest in debt too.
Mutual funds can also invest in gold so these give investors an exposure to a commodity.
There can be a mixture of various assets in a mutual fund portfolio too.
An investor gives their money to the mutual fund to manage.
The mutual fund then invests the money in a specific area or asset.
The investor thus has an exposure to this area or asset as their money is invested in it.
The returns generated from here less expenses are the returns for the investor,
So the performance of the investors money depends on how the portfolio of the fund performs.
Diversification requires the presence of different investments so that the risk is spread out.
A proper diversification of the portfolio requires a large amount of money when done by an individual on their own.
A mutual fund is a portfolio of investments.
This ensures that the benefit of diversification is automatic when a mutual fund is bought.
A mutual fund will only help in part diversification as a specific fund is focused on a specific area or asset.