“What is Mutual Fund units and how it impact the investment”

 Date: 25-Jan-2021

“What is Mutual Fund units and how it impact the investment”

Mutual fund investment becomes new way of investments by individuals. There are different types of Mutual Funds are available in the market and different ways to invest in mutual funds as well. When investor is investing in Mutual fund via SIP option, AMC assign the units to the Folio number (Investor’s account with particular AMC). This units are reflection of the market movement where on business working days, AMC need to do the NAV calculation on daily basis and update the same details in the Customer’s Folio. Below case study will help one to understand the Mutual Fund Units and other related areas.

Suppose Mr. Sushil, an Investor started investing in AXIS LONG TERM EQUITY FUND and created the SIP mandate with his bank. Below are the investment details which contains the SIP date, SIP amount, NAV and Units got during this investment.

On the SIP date, the NAV will be taken after the Market hours and the NAV will be used to determine the Units assigned to Customer’s Folio. So on the SIP date of 10-Jan-2020, after market hour NAV for the Mutual fund is 49.6043, and the units assigned by AMC to customer’s folio is 20.16. The available Units or Units hold in the folio is 20.16 as of 10-Jan-2020.

So if we go by the calculation below, which contains the investment in the Mutual Fund (MF) for one year, Mr. Sushil’s Folio contains,

Total Investment amount: INR 12000.00

Total Units (No of unit hold)= 261.32

Latest NAV: 56.8814

SIP date: 10-Dec-2020

SIP date	SIP amount	NAV	Units
10-Jan-20	1000	49.6043	20.16
10-Feb-20	1000	51.8613	19.28
10-Mar-20	1000	47.441	21.08
10-Apr-20	1000	39.6071	25.25
10-May-20	1000	37.2312	26.86
10-Jun-20	1000	40.2114	24.87
10-Jul-20	1000	44.5646	22.44
10-Aug-20	1000	46.3534	21.57
10-Sep-20	1000	46.6246	21.45
10-Oct-20	1000	47.8232	20.91
10-Nov-20	1000	50.3242	19.87
10-Dec-20	1000	56.8814	17.58
Count- 12	Total Investment- 12000	NA	261.32

 

Now if Mr. Sushil checks the current NAV in the Scheme (AXIS LONG TERM EQUITY FUND) as of 22-Jan-2021, the NAV is 59.6702.

AMC- Scheme name	Units	Last NAV-Date	Last NAV-Rs	Total value at NAV (Rs.)	Value At Cost (Rs.)	Profit/Loss
AXIS LONG TERM EQUITY FUND - GROWTH PLAN	261.32	22-Jan-21	59.6702	15,592.95	12000	(3,592.95)

 

As per the above table, the Unrealized profit coming as INR 3592.95, as on 22-Jan-2021. If Mr. Sushil would like to realize this profit, so he can request for Unit Redemption. Here profit of 3592.95, the total units Mr. Sushil can withdraw is 60.21 (3592.95 / 59.6702). Total Units hold by Mr. Sushil is 201.11 (261.32 -  60.21).

Hope the above case study has given some idea on how the unit holding under MF folio works out. Below are some definition which help to understand the Financial concepts.

Mandate: A one time non financial maintenance which state that the particular amount, on particular date, to particular beneficiary should gets transferred. When funds gets actually debited on the pre-defined date that setup is called Standing Instruction, which are financial in nature.

Net Asset Value: This is the calculation used by the AMC to come-up with NAV. It has following calculation,

NAV= (Total Asset – Total Liability) / No of outstanding units

AMC: Asset Management Company. Asset means the funds which Investor has given to Trust, which have created the AMC to manage the Investment corpus based on the Scheme objectives.

SIP: Systematic Investment Plan. Under this, Investor decide in what frequency, in what amount and at what date the investment can be done.

Tip of the day:

One can open the ICICI Direct 3-In-1 account where investor get 3 accounts namely Saving account with zero Balance, De-mat and Trading account. After getting the account opened, Investor can

1)      Start using the ICICI Direct Platform for investment purpose, to transfer the funds from ICICI Bank Saving account.

2)      Investor can invest in various Mutual fund schemes where no charges are applied on the SIP set for unlimited/ till cancellation duration. There won’t be any charges taken by the AMC in this type of SIP.

3)      Investment can be done in the following investment vehicles

a.       Shares

b.       Mutual Funds

c.       Fixed Deposits (Bank and Corporate)

d.       Commodities

e.       Future and Options

f.        Currencies

g.       Insurance (Life and Health)

h.       Loans

i.         International investment

j.         Initial Public offerings

k.       Bonds/ NCD/ Debentures

l.         NPS

4)      ICICI Direct also provide portfolio management services, which are backed by strong research.

Disclaimer: I have used the ICICI Direct services, and recommendation comes from my personal experience. Kindly do your own investment analysis and do take the decision before making any financial decisions.