We always think about a fact and we all know that it has crossed several times in our minds that- in a savings bank account or FD, we do not get the interest in mutual funds; then how is this possible that your money grows and gives you amazing results?
We would like you to know that the money that you have invested in the mutual funds grows and mature just like the gold or real estate does. For instance, if you happen to buy a unit let’s say 10 gm s of gold or 1 apartment for a price and then after few years, as the prices in the market increases for the real estate and gold and now you want to sell it. You will observe the fact that you will be selling it at a different price which is higher than the one you bought it at. The difference between sale price and purchase price is your return.
In a similar manner, if you happen to invest in the equity fund and you get to buy the ‘units’ from any mutual fund providing company at a certain day’s price. Let us understand this with an example like: If you are investing Rs. 10,000 in a fund and at that time the price is Rs.20 then you will get 500 units. And when you sell it (if current price per unit is Rs. 30) then you would get to have Rs. 15,000. The difference of Rs.5000 is your profit.
There is this term known as Net Asset Value (NAV) which is the price of a mutual fund.
The fact that makes the mutual funds very useful is that you are allowed to buy the small quantities as well. This is why you might actually see yourself holding 13.1741 units.
As we all know the price hike in the amounts of gold or real estate does not go up in an unpredictable manner similar is the case with mutual funds. You get to hold them for a while to realize the gain.