March 12, 2026
4 mins read
This blog provides a comprehensive guide to understanding mutual fund units, explaining how they represent fractional ownership in a diversified portfolio. Learn exactly how NAV determines unit pricing, how to calculate your holdings, and the step-by-step process for buying and redeeming units. Gain valuable insights into risk diversification and how units differ from equity shares to optimize your investment strategy.
Mutual fund units show how much of a scheme belongs to each investor. When money enters a fund, it turns into units linked to a daily Net Asset Value (NAV). This NAV comes from the fund’s asset value after subtracting liabilities. It is then divided by the total units.
Investors get exposure to an assortment of assets through the purchase of a mutual fund instead of having to choose one stock or bond. By bringing together the money of multiple investors into one mutual fund, the average investor has the ability to lower their individual risks.
As the underlying assets held within a mutual fund increase or decrease in value, the price of a mutual fund unit will correspondingly increase or decrease. New mutual fund units are issued when investments enter the scheme, and redemptions reduce the total outstanding units.
Units in mutual funds represent small slices of ownership in a scheme. When money is deposited into a fund, units are issued in return. The value of these units depends on the NAV, which shows the fund’s worth after adjusting for assets and liabilities. Each unit reflects a share of the full portfolio and not just one stock or bond. This makes it very different from owning a single company share.
Every unit carries the same proportion of the fund’s holdings, no matter when it is bought. In open-end funds, new units are created for new investors. Closed-end funds keep a fixed number of units. The NAV changes with market movements, allowing investors to buy or sell units with ease and gain exposure to a diversified mix of securities.
Additional Read: What are Mutual Fund Portfolio
Understanding the pricing mechanism of mutual fund units is crucial for investors. The price of one unit is determined by the fund’s Net Asset Value (NAV), which is calculated at the end of each trading day. NAV is the per-unit market value of all the assets held by the mutual fund, minus any liabilities.
The formula to calculate NAV is:
NAV = (Total value of assets – Total value of liabilities) / Number of unit-holders
When an investor puts money into a mutual fund, they receive units based on the NAV of that day. For example, if a mutual fund has assets worth Rs. 1 crore and liabilities worth Rs. 5 lakh, and there are 1 lakh units issued, the NAV would be:
NAV = (1,00,00,000−5,00,000)/1,00,000 = Rs. 95 per unit.
If an investor puts Rs. 9,500 into this fund, they will receive 100 units. However, if the NAV increases to Rs. 100 the next day, the same investment would yield only 95 units.
Identify the NAV (Net Asset Value)
NAV = (Total Fund Assets – Total Fund Liabilities) ÷ Total Units Outstanding.
This value represents the cost of one unit of the mutual fund.
Apply the Units Formula
Units Allotted = Investment Amount ÷ NAV on the Purchase Date.
Example: If you invest ₹10,000 and the NAV is ₹50, then:
Units = 10,000 ÷ 50 = 200 units.
Consider Additional Factors
Entry load (if applicable) reduces the investible amount.
NAV fluctuates daily based on market movements.
The timing of purchase also influences the NAV used for unit calculation.
This method helps you know exactly how many mutual fund units you receive.
To make informed investment decisions, investors should consider these essential aspects of mutual fund units:
Ownership Structure: Mutual fund units denote ownership in the scheme, representing a share of the overall fund.
NAV-Based Pricing: The price per unit is determined based on the NAV calculated at the end of each trading day.
Asset Diversification: A single unit reflects a proportional share in the diverse securities held by the fund.
Liquidity: Units can be bought and sold with ease, offering flexibility to investors.
Unit Creation and Redemption: Open-ended schemes allow continuous creation and redemption of units, whereas close-ended schemes have a fixed number of units.
Impact of Fees and Charges: Expenses like entry load and exit load may influence the number of units allotted or the redemption amount.
Purchasing mutual fund units is a straightforward process, but investors need to be aware of a few key steps before proceeding. Buying units involves selecting a mutual fund that aligns with one’s financial goals and investment horizon.
Choose the Mutual Fund Scheme: Research and select a scheme that suits your investment goals, whether it’s equity, debt, or hybrid.
Evaluate Risk and Returns: Assess the risk factors and historical performance of the fund before making a decision.
Complete KYC Formalities: Submitting Know Your Customer (KYC) documents is mandatory to invest in mutual funds.
Determine Investment Mode: Decide whether to invest through a lump sum amount or a Systematic Investment Plan (SIP).
Submit Application and Payment: Submit the application online or offline, along with the required investment amount.
NAV Impact: The number of units allotted is based on the NAV at the end of the day the application is processed.
Cut-Off Time: Ensure the investment is made before the cut-off time to receive the NAV of the same trading day.
Charges and Fees: Check for any entry loads or transaction fees that may affect the total investment amount.
By understanding the steps involved and being aware of these factors, investors can confidently invest in mutual fund units.
Mutual fund units can be redeemed by selling the units back to the actual fund house. The amount received upon redemption is determined by the Net Asset Value (NAV) calculated on the day of processing.
Step 1: Create a Redemption Request
To initiate the redemption process, a request must be submitted. This can be done online or through an approved medium.
Step 2: Determine the Number of Units or Amount to be redeemed
When redeeming, an investor can either redeem a specific number of units or specify an amount for withdrawal. Each option works straightforwardly.
Step 3: Confirm Transaction
The request must be reviewed and confirmed. This ensures the details are correct.
Step 4: Receive Proceeds
The amount reaches the bank account in a short time. It depends on the NAV on that day.
Step 5: Exit Load
Some schemes apply a fee when units are redeemed early. This fee reduces the payout received.
Step 6: Taxation
Capital gains may face tax based on the fund type and holding period. The rules vary across categories.
Selling mutual fund units follows a process similar to redemption but with additional considerations. When investors sell their units, they essentially redeem them from the fund house.
Log in to Investment Platform: Access the online account where the mutual fund investment is held.
Select the Mutual Fund Scheme: Choose the scheme from which units need to be sold and specify the number of units or amount.
Submit and Confirm: Submit the request for processing. The proceeds are calculated based on the NAV of the trading day.
Impact of Exit Load: Selling units before a specified period may incur exit load charges.
Taxation Impact: Be aware of applicable capital gains taxes based on the holding period and type of fund.
Aspect | Equity Shares | Mutual Fund Units |
Ownership | Represents a direct share in one company. The value rises or falls with that company’s performance. | Reflects a share in a pooled fund. The value depends on the full mix of assets. |
Risk Spread | Risk stays tied to a single business. Sudden events can affect the share price. | Risk spreads across many securities. This balance offers smoother movement. |
Management | Decisions depend on the shareholders’ choices. Each trade needs separate action. | A fund manager handles the portfolio. Investors do not select individual assets. |
Pricing | Prices shift throughout the trading day. They depend on market demand and company news. | Units follow the daily NAV. It updates after markets close. |
Entry and Exit | Buying and selling happen on the stock exchange. Timing depends on market hours. | Units can be bought or redeemed through the fund house. The process follows NAV rules. |
Share this article: 
No result found
Mutual fund units represent an investor’s share in a mutual fund scheme, while NAV (Net Asset Value) is the per-unit value of the fund’s total assets minus liabilities.
No, mutual fund units cannot be transferred directly between investors. However, they can be redeemed or sold, and the proceeds can be reinvested in another fund.
To calculate mutual fund units, divide the investment amount by the NAV of the scheme on the day the investment is processed.
Number of Units = Investment Amount/NAV
To redeem units, log in to the fund platform, choose the scheme, select the number of units or amount, and submit the redemption request. The proceeds will be credited to your account.
Mutual fund units can be sold online through the fund house’s website or offline by submitting a physical redemption form. The amount is credited based on the NAV of the processing day.
Units are allocated based on the NAV at the end of the trading day when the investment is processed. The number of units is equal to the investment amount divided by the NAV.
Disclaimer :
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
Please Enter Mobile Number
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
