Unit
Also written Units · Mutual fund unit
The share of a mutual fund scheme that an investor's money is translated into — typically carrying a face value of Rs 10, and worth whatever the scheme's NAV is on the day.
In plain language
When you put money into a scheme, you are not handed shares of the companies it owns. You are issued units of the scheme, and those units are your claim on the pool.
Every unit carries a face value, typically Rs 10. That number is an accounting convention and nothing else — it is not what the unit costs and not what it is worth. What you pay, and what you get back, is the NAV.
Units can be held in decimals but cannot be transacted in decimals.
How it works
Two numbers move independently, and keeping them apart is most of the examinable content.
The number of units you hold changes only when you buy, redeem, switch, or receive units — from an IDCW reinvestment or a bonus issue. It does not change because the market moved.
The value of each unit — the NAV — changes every business day as the portfolio is marked to market.
At scheme level, units issued multiplied by face value is the unit capital. In an open-ended fund the unit capital changes constantly: new money creates units, redemptions cancel them. In a close-ended fund it is fixed after the NFO, because post-NFO trades happen between two investors on a stock exchange, and the scheme is not a party to them.
The face value also decides one thing that catches people out: an IDCW is declared as a percentage of face value, not of NAV. A "10 percent dividend" on a Rs 10 face value is Re 1 per unit, whatever the NAV happens to be.
A worked example
Ramesh invests Rs 50,000 in an equity scheme whose NAV that day is Rs 125.40.
Units allotted = 50,000 ÷ 125.40 = 398.724 units
He holds 398.724 units with a face value of Rs 10 each — a unit capital contribution of Rs 3,987.24 — and a market value of Rs 50,000.
Three years on, the NAV is Rs 191.00. He still holds 398.724 units; nothing about the count changed. The value is 398.724 × 191.00 = Rs 76,156.
Now the scheme declares an IDCW of 15 percent. That is 15 percent of the Rs 10 face value = Rs 1.50 per unit, so Rs 598 on his holding — not 15 percent of Rs 191. If he is in the reinvestment option and the ex-dividend NAV is Rs 189.50, he receives 598 ÷ 189.50 = 3.156 more units, taking him to 401.880. His holding is worth the same Rs 76,156 either way; only the split between units and NAV has changed.
Why NISM asks about it
Chapter 2.1.4 (Important Concepts in Mutual Fund Units) introduces face value, unit capital, recurring expenses, NAV, AUM and mark to market as one block, and Chapter 9 returns to units when it works through the payout, reinvestment and growth options. The examinable trap is almost always the face value: questions that declare a percentage dividend and expect you to apply it to Rs 10 rather than to the NAV.
Common exam traps
- Face value is not price. You buy at NAV. Face value matters only for unit capital and for reading a percentage IDCW declaration.
- A falling NAV does not reduce your unit count, and a rising NAV does not increase it. Only transactions and reinvestments do.
- Units can be held in decimals but not transacted in decimals.
- Unit capital is fixed in a close-ended scheme and variable in an open-ended one — this is the standard structure question.
- Units of ETFs are compulsorily held in demat form, because only demat securities can be traded on an exchange.
Where this is taught
- Series V-B · Chapter 2: Concept and Role of a mutual fundintroduced here
- Series XIX-B · Chapter 3: Introduction to Category III AIF Ecosystemintroduced here
- Series V-A · Chapter 2: Concept & Role of a Mutual Fundintroduced here
- Series II-A · Chapter 5: Basics of Mutual Fundsintroduced here
- Series II-B · Chapter 8: Basics of Mutual Fundsintroduced here
Related terms
- Face valueThe denomination a company's capital is divided into and carried in its books — fixed, printed on the certificate, and the base on which dividend percentages and stock splits are computed.
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- Close-ended fundA scheme with a fixed maturity, bought from the fund only during the NFO and thereafter transacted between investors on a stock exchange.
- Mutual fundA trust registered with SEBI that pools money from many investors and invests it in securities on their behalf — not a different product from shares and bonds, but a different way of owning them.
- Open-ended fundA scheme open for purchase and repurchase on a perpetual basis after the NFO, with no maturity date.
- Unit capitalThe number of units a mutual fund scheme has issued multiplied by their face value — an accounting figure that records what investors contributed, not what their holding is worth today.
- IDCWThe renamed dividend option of a mutual fund scheme — a payout that is part income and part return of your own capital, which is why the NAV falls by exactly the amount distributed.