How do Investors Buy and Sell Units in a Mutual Fund?

Mutual funds offer a simple way for investors to grow their money by pooling it together with others to invest in a diversified portfolio of stocks, bonds, or other securities. But how do investors actually buy and sell units in a mutual fund? Let’s break it down in easy-to-understand terms.

Buying Units in a Mutual Fund

1.Choose a Mutual Fund:

The first step is to choose a mutual fund that aligns with your investment goals, risk tolerance, and time horizon. You can explore various mutual funds offered by different asset management companies (AMCs) in India.

2.Open an Account:

To invest in a mutual fund, you need to open an account with the fund house or a registered distributor. This can usually be done online or through a physical form provided by the fund house.

3.Investment Amount:

Decide how much money you want to invest in the mutual fund. You can typically start with a small amount, making mutual funds accessible to investors with different budget sizes.

4. Submit Application:

Fill out the application form provided by the fund house or distributor, providing details such as your name, address, PAN (Permanent Account Number), investment amount, and bank account information.

5.Payment:

Make the payment for your investment either through net banking, cheque, demand draft, or other payment modes accepted by the mutual fund.

6.NAV Allotment:

Once your payment is received, the mutual fund will allot units to you based on the prevailing Net Asset Value (NAV) of the fund on the day of your investment. NAV represents the per-unit market value of the mutual fund.

7. Confirmation:

You will receive a confirmation statement or an account statement from the mutual fund confirming your purchase of units. This statement will include details such as the number of units allotted, NAV at which they were allotted, and the total amount invested.

Selling Units in a Mutual Fund

1.Choose Selling Method:

Decide how you want to sell your mutual fund units. You can either redeem them directly with the fund house or through a registered distributor.

2.Redemption Request:

Fill out the redemption form provided by the fund house or distributor, specifying the number of units you want to sell.

3.Submit Request:

Submit the redemption request form along with any necessary documents to the fund house or distributor. Ensure that the details provided, such as bank account information, are accurate to avoid any delays in processing.

4.NAV Redemption:

The redemption proceeds will be calculated based on the prevailing NAV of the mutual fund on the day your redemption request is processed.

5.Payment:

The redemption proceeds will be credited directly to your registered bank account within a specified timeframe, usually within a few working days.

6.Confirmation:

You will receive a confirmation statement or an account statement from the mutual fund confirming the redemption of your units. This statement will include details such as the number of units redeemed, NAV at which they were redeemed, and the total redemption proceeds.

Buying and selling units in a mutual fund is a straightforward process that can be done through the fund house or a registered distributor. By following these steps and understanding how mutual funds work, investors can participate in the financial markets and work towards achieving their investment objectives. Remember to consider your investment goals, risk tolerance, and time horizon before investing in mutual funds, and consult with a financial advisor if needed. Happy investing!