Share Market

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Units are issued to the investors in accordance with quantum of money invested. They are known as unit holders. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

The Term Net Asset Value (NAV) is used by investment companies to measure net assets. It is calculated by subtracting liabilities from the value of a fund’s securities and other items of value and dividing this by the number of outstanding shares. It is equivalent to the share price of individual scrip/ company e.g., if the Nest Asset Value of any Mutual Fund is Rs. 75, in order to purchase one unit of that fund. An investor has to pay Rs. 75.

The value of a collective investment fund based on the market price of securities held in its portfolio. Units in open ended funds are valued using this measure. Closed ended investment trusts have a net asset value but have a separate market value. NAV per share is calculated by dividing this figure by the number of ordinary shares. Investments trusts can trade at net asset value or their price can be at a premium or discount to NAV. The professionals called fund managers analyze the market conditions and make necessary investment decisions in order to achieve maximum profit. Finally, the earnings are passed on to the investors. In return of the services offered, a fee is charged from the investors. There are also some `no load funds’ that have no sales charge.

We can calculate the NAV by taking the current market value of the fund’s net assets (securities held by the fund minus any liabilities) and divide it by the number of shares outstanding. So if a fund had net assets of Rs.50 lakh and there are one lakh shares of the fund, then the price per share (or NAV) is Rs.50.00.