Understanding Roundoff in Mutual Funds: A Simple Explanation

A mutual fund is not bought on the basis of the number of shares. It is bought on the basis of units. Through this blog, we will explain to you the concept of roundoff in a mutual fund.

Let’s begin!

How are Mutual Funds Bought and Sold?

A mutual fund is basically a pool of money accumulated from more than one investor for the purpose of investment in different asset classes.

They can be bought through investment platforms or even the AMC directly.

Mutual funds, unlike direct stocks are bought and sold on the basis of units. Let’s explain this to you on the basis of an example.

Now let’s say you invest Rs. 5000 in SBI Bluechip Fund. The NAV of which is Rs. 41. 8. The calculation is as follows:

5000/ 41.8 = 119.61

Which means you own 119.61 units of that mutual fund. At this time when you look at your dashboard, you will see that the investment amount will be Rs. 4,999.6.

So where did the Rs. 0.4 go?

When you multiply Rs. 119.61*41.8 = 4,999.6, the 4 paisa remains with the fund itself.

Similarly, many times, you may even get a few paisas extra depending on the NAV of that day. 

Should You be Worried?

Absolutely not!

This is an almost negligible amount which you should not be worried off when trading in a mutual fund.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww