Five smart things to know while investing in mutual funds

1) The net asset value of a mutual fund holds unrealised profits. The investor can cash in these unrealised profits at any given point in time by redeeming units in the portfolio.

2) In order to enable investors to realise these profits on the portfolio, securities in a mutual fund portfolio are valued on a daily basis.

3) Equities held in the portfolio are valued at closing market prices of the securities on the principal stock exchange. For thinly traded shares, valuation is carried out at fair value as per approved procedures.

4) Debt securities in the portfolio with more than 60 days maturity are valued at the prices provided by AMFI-approved agencies. Those with lesser maturity are valued at weighted average yield to maturity.

5) This process of valuing the portfolio every day with the realisable value of the securities is known as mark to market.

The content is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.