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When someone starts investing, a few terms keep coming up again and again. One of them is a Mutual Fund Unit. At first, it may feel confusing, but it is not complicated. A unit simply shows how much of the fund you own. Instead of buying shares one by one, you put money into a fund and receive units in return. The number depends on the price at that moment. Once this clicks, tracking your investment feels far less overwhelming.
Key Takeaways
● A mutual fund unit represents your share in the fund, with value changing daily based on NAV movements.
● NAV determines unit value and fluctuates with the market performance of underlying assets like stocks and bonds.
● Units are allocated based on investment amount and NAV, making SIPs useful for averaging costs over time.
● Understanding units and NAV helps investors track performance better and make informed redemption or holding decisions.
What is a Unit in a Mutual Fund?
Think of a unit as your share in a big pool of money. When you invest, you receive available units in mutual funds based on the fund’s NAV on that day. For instance, if you invest ₹5,000 and the NAV is ₹50, you get 100 units. Now, if the NAV goes up, the value of your units rises. If it falls, the value drops. The number of units does not change unless you invest more or sell some. This is why both unit count and NAV matter. Together, they show how your investment is moving.
How Does a Mutual Fund Unit Price Work?
Similar to equity shares, each unit of a mutual fund is assigned a value. The value, known as the Net Asset Value or NAV, is determined using the following mathematical formula.
Net Asset Value = [(Total Value of Assets in the Fund - Total Value of Liabilities in the Fund) ÷ Total Number of Units in the Fund]
Here’s an example to help you understand how the price of a mutual fund unit works.
Assume that a mutual fund holds ₹200 lakh worth of assets in the form of equity and debt instruments. The fund’s total liabilities, including all possible expenses such as administrative expenses, fund manager’s fees and marketing and commission costs, come up to around ₹20 lakh. The total no. of units in the mutual fund as of the date of calculation is 4 lakh.
Substituting these values in the above-mentioned formula should give you the Net Asset Value or value per mutual fund unit.
Net Asset Value = ₹45 per unit [(₹200 lakh - ₹20 lakh) ÷ ₹4 lakh]
The Net Asset Value of a mutual fund doesn’t remain the same throughout. In fact, it fluctuates based on the changes in the value of the fund’s underlying assets. For instance, if the value of the fund’s underlying securities increases, the NAV of the fund is also likely to increase. On the contrary, if the value of the fund’s securities decreases, the NAV of the fund may also decrease.
Furthermore, as per the Securities and Exchange Board of India (SEBI), every mutual fund house is mandatorily required to calculate and publish the NAV of its funds at the end of every trading day.
How to Purchase Mutual Fund Units?
As an investor, you need to know how to purchase units of a mutual fund. Here’s a quick overview of the process you need to follow.
● Step 1: Open a demat on Angel One.
● Step 2: Log in to your trading account using your user credentials.
● Step 3: Navigate to the mutual funds section of the portal.
● Step 4: Search for the mutual fund that you would like to invest in.
● Step 5: Choose between a lump sum (one-time) or SIP (monthly) investment. Enter the amount you wish to invest, as mutual fund orders are typically placed by value rather than a specific number of units.
● Step 6: Before placing the order, check if you have the requisite amount in your trading account or linked bank account.
● Step 7: Complete the payment via UPI, Net Banking, or your trading balance.
Once the purchase order is executed and the funds are received by the fund house before the 3:00 PM cut-off, units are typically allotted at that day's NAV. The actual credit of units to the Demat account generally occurs within 1–2 business days of the transaction date
Alternatively, you can also purchase units of a mutual fund even if you don’t have a demat and trading account. In such cases, you can hold units in Statement of Account (SOA) form by submitting a subscription form along with the necessary KYC documents and the amount you wish to invest directly to the mutual fund house or an Official Point of Acceptance (OPA).
Once the application is processed, you will be allotted units and receive a Consolidated Account Statement (CAS).
Before you purchase units, there’s another major factor you need to consider: the NAV cut-off time and the "Realisation of Funds" rule. Per SEBI guidelines, the NAV at which units are allotted depends on when the money actually reaches the mutual fund’s bank account.
● For Equity and Debt Funds: If both your application and the funds are received by the fund house before the 3:00 PM cut-off time, the units will be allotted at the current day’s NAV. On the other hand, if the funds are transferred or received after 3:00 PM, the units will be allotted at the next business day’s NAV.
● For Liquid and Overnight Funds: If funds are received before the 1:30 PM cut-off time, units are typically allotted at the previous day’s (T-1) NAV. If received after this time, the current day's NAV applies.
Difference Between Equity Shares and Mutual Fund Units
At the outset, equity shares and mutual fund units might seem to share a lot of similarities. However, they also have their fair share of differences. Here’s a table outlining some of the key differences between the two.
|
Particulars |
Equity Shares |
Mutual Fund Units |
|
Ownership |
Represents direct fractional ownership in a specific company |
Represents ownership in a mutual fund’s portfolio of securities |
|
Diversification |
None; your investment is tied to the performance of a single company |
Instant; a single unit provides exposure to a basket of multiple securities |
|
Investment Risk |
High; you are exposed to both market risk and company-specific (unsystematic) risk |
Moderate; diversification helps mitigate company-specific risks, though market risk remains |
|
Voting Rights |
Offer direct voting rights to the holder on corporate resolutions |
Generally, do not offer any kind of direct voting rights to the holder |
|
Volatility |
Can be extremely volatile as prices react to news specific to that one company |
Typically lower volatility; the NAV represents the average performance of all underlying assets |
|
Liquidity |
Liquidity can vary greatly; some stocks may have no buyers when you want to sell |
High liquidity; open-ended funds allow redemption on any business day as per SEBI-regulated timelines. However, redemption may be temporarily restricted under exceptional market conditions, and certain schemes like ELSS have mandatory lock-in periods. |
Things to Know About Mutual Fund Units
A Mutual Fund Unit does not have a fixed price. It keeps changing every day because the market keeps moving. That daily price is called NAV. If you invest regularly through SIPs, you will notice something interesting.
Some months you get more units, some months fewer. It depends on the NAV at that time. Over a period, this balances out the cost. You can redeem your units whenever you need money, unless the fund has a lock-in period. Once redeemed, your unit count reduces. One simple way to look at it is this. Units show your share, while NAV shows what that share is worth today.
Also Read More About: What Is Lock-In Period In Mutual Funds
Conclusion
A Mutual Fund Unit may look like a small detail, but it quietly tells the full story of your investment. It shows how much of the fund you own and how that ownership changes in value over time. Many investors only look at total returns. But when you also pay attention to units, things become clearer. You can see how your investments build up and how they react to market changes. You do not need to track every stock inside the fund. Watching your units and their value is enough to understand where you stand. That clarity helps when you decide whether to stay invested or take money out.
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