What is Net Asset value (NAV)?

The performance of a particular scheme of a Mutual Fund is denoted by Net Asset Value (NAV). In simple words, NAV is the market value of the securities held by the scheme. Mutual Funds invest the money collected from investors in securities markets. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date.

The video on the left explains how NAV is calculated.

The NAVs of all Mutual Fund schemes are declared at the end of the trading day after markets are closed, in accordance with SEBI Mutual Fund Regulations. 

What are loads?

On a long-distance road journey, sometimes a toll is charged when you enter the road or the bridge, and sometimes when you exit. In many cases, the toll bridge company is allowed to charge the toll only for a certain number of years to recover the building costs. After that period is over, the company is not allowed to charge the passengers any toll.

Investment in Mutual Funds also may be subject to some loads, but they’re different from the example of the tolls you just read. Until 2009, there used to be a charge levied at the time of entry into a Mutual Fund, but that doesn’t exist anymore. Some schemes levy a charge on exiting the scheme, under certain conditions, which is called “exit load”.

In most cases, even when an exit load is charged, it applies to exit within a certain period. If you stay invested longer than this period, no exit load would be applicable. In other words, most often, the exit load serves the purpose of discouraging an early exit from a scheme. Even on an “exit load”, SEBI, the mutual fund regulatory authority, has set a limit on the maximum exit load that can be charged.

What are the various types of mutual funds?

Equity or Growth Funds
These invest predominantly in equities i.e. shares of companies
The primary objective is wealth creation or capital appreciation.
They have the potential to generate higher return and are best for long term investments.
Examples would be
“Large Cap” funds which invest predominantly in companies that run large established business
“Mid Cap funds” which invest in mid-sized companies. funds which invest in mid-sized companies.
“Small Cap” funds that invest in small sized companies
“Multi Cap” funds that invest in a mix of large, mid and small sized companies.
“Sector” funds that invest in companies that are related to one type of business. For e.g. Technology funds that invest only in technology companies
“Thematic” funds that invest in a common theme. For e.g. Infrastructure funds that invest in companies that will benefit from the growth in the infrastructure segment
Tax-Saving Funds
Income or Bond or Fixed Income Funds
These invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.
These are relatively safer investments and are suitable for Income Generation.
Examples would be Liquid Funds, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.
Hybrid Funds
These invest in both Equities and Fixed Income, thus offering the best of both, Growth Potential as well as Income Generation.
Examples would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.

Are there different kinds of equity funds available?

There are different equity funds catering to various needs of investors. The broad objective of all is to generate appreciation over long periods.

To understand it better let us look at the contingent we send to the Olympic Games. There is a large group of players, and then there are teams for various sports. One of the major events at the Olympic Games is the “track and field” event. We send a group for these events, as well. Within that, there are some races – right from a 100-meter sprint to long distance races, including marathon. Though, the whole contingent has gone to compete in the Olympic Games, there would be different players with different strengths.

It is the same with Mutual Funds. If all the Mutual Fund schemes are equivalent to the entire Olympic contingent, equity funds may be similar to a group within, which participates in, various track and field events. As we saw, there are various sub-categories even within track and field, similarly, there are different schemes within equity funds.