Mutual Fund Units are in a way like shares of a company that trade in the market and represent the extent of ownership you have in the Mutual Fund as an investor. As you know, Mutual Funds are pooled investment vehicles that invest in different securities across asset classes like debt, equity, international securities, gold, etc. The amount of money you invest in a fund decides the number of units of the fund you would be allotted, and these units represent the extent of your ownership in the pool of money managed by the fund on behalf of all its investors.
The number of units allotted to an investor depends on the money invested by the investor and the applicable NAV. If an investor invests ` 1,000 in a scheme and the NAV for that day is ` 100, the investor will be allotted 10 units of the scheme (= Amount invested/Applicable NAV). These 10 units represent the investor’s extent of ownership in the scheme.
These units can be expressed in decimal as well and need not always be in whole number. In the above case, if the closing NAV of the scheme was ` 98 when the investor submitted his purchase application, he would have been allotted 10.204 units instead of 10 units as we saw in the above example.
The current NAV of a scheme represents the cost of one unit of that scheme. The value of your holding in a Mutual Fund can be obtained by multiplying the number of units of the scheme held by you multiplied by the current NAV of the scheme.