What is corpus in mutual fund?
In simple words, the term “corpus” in mutual funds refers to the total amount of money that is collected from all the investors in a particular mutual fund scheme. It is like a big pool of money which is managed by a professional fund manager.
How is a corpus formed?
Investment from individuals: People like you and me, who want to invest their money, contribute to the corpus of mutual funds. When you invest in mutual funds, your money gets added to this big pool.
Institutional Investment: Apart from individuals, large institutions like banks, insurance companies and other financial organizations also invest in mutual funds. Their contribution is also added to the fund.
Why is corpus important?
Investment diversity: A larger corpus allows a mutual fund to invest in a wider variety of assets. This diversification can help spread risk and potentially lead to better returns.
Economies of scale: When a mutual fund has a larger corpus, it can negotiate better deals and lower fees with brokers and other service providers. This can lead to cost savings, which ultimately benefits investors.
Liquidity: A larger corpus provides more liquidity to a mutual fund. This means it can handle a large number of redemption requests without having to sell investments at potentially unfavorable prices.
Ability to cope with market fluctuations: A larger corpus can provide stability during times of market volatility. It can absorb shocks better than smaller funds.
How is the corpus distributed?
Unit allotment: When you invest in a mutual fund, you are allotted units. The number of units you get depends on how much money you invest and the current net asset value (NAV) of the fund.
NAV Calculation: NAV of a mutual fund is like the price per unit. It is calculated by dividing the total corpus by the total number of units. This is done at the end of each trading day.
Can the corpus change?
Yes, the corpus of a mutual fund is not fixed. This may change every day. It increases when new investors invest money and decreases when existing investors redeem their units.
So, in simple words, the “corpus” in a mutual fund is like a big pot of money that comes from all the investors. The size of this pot is important because it affects how the mutual fund invests, what its costs are and how it deals with changes in the market. Remember, when you invest in a mutual fund, you are part of this larger pool, and the success of the fund depends on how well it manages this corpus.