Have you ever thought about how Mutual funds work?

Many of us invest in the stock market by ourselves, we do our own research and invest some money in stocks. Now, let’s think about Mutual funds, Suppose 100 investors invest in a mutual fund, Now a mutual fund will have someone that is called a Fund Manager, we will decide on the fund to invest in multiple stocks with different allotments.

They will invest money from all the 100 investors in a variety of stocks. Investors get the units as per the NAV value of that mutual fund. NAV is the Net asset value which defines the value of the Mutual fund as share price for stocks.

Mutual funds are mostly in 3 categories, Large-cap, Midcap, and small-cap. this defines the investment to be done by mutual funds and will depend on the market capitalization of the companies. Suppose you invested in a Large cap mutual fund, now that mutual fund will invest your money in stocks with large market capital hence less risk. as the same will follow for mid-cap and small-cap.

When stocks invested by a mutual fund perform well, the overall asset value of that fund will increase hence an increase in the NAV, and you will have a profit.

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