📘 How Do Mutual Fund Schemes Operate?
Mutual fund schemes operate in a systematic way to collect money from investors and invest it according to a predefined objective.
🎯 1. Announcement of Scheme
- A mutual fund launches a scheme with a specific investment objective
(e.g., growth, income, balanced)
👉 Investors choose schemes based on their goals
💰 2. Mobilization of Funds
- The scheme invites investments from the public
- Depending on structure:
🔹 Open-ended schemes
- Investors can invest anytime
🔹 Close-ended schemes
- Investors can invest only during a limited period (NFO)
🧾 3. Allotment of Units
- When an investor invests money:
- It is converted into units of the scheme
👉 Example:
- Invest ₹10,000 at NAV ₹10 → You get 1,000 units
📊 4. Investment of Funds
- The pooled money is invested in:
- Stocks
- Bonds
- Other securities
👉 As per the scheme’s objective
📈 5. NAV (Net Asset Value)
- Value of each unit is called NAV
- Changes daily based on market performance
👉 Determines:
- Profit or loss of investors
🔄 6. Redemption / Exit
- Investors can:
- Sell units back (open-ended)
- Exit at maturity (close-ended)
👉 Returns depend on NAV at the time of exit
🧠 Easy Summary (Exam Ready)
👉 Mutual fund schemes collect money from investors, issue units, invest funds as per objectives, and generate returns reflected through NAV.
