Summary: Mutual funds are great investment vehicles to channelize your funds to achieve your financial goals. It is a collective fund of pooled investment of the likeminded and has several types of fund schemes to offer. Open ended mutual fund offers ease of liquidity and is quite famous amongst investors. But before you choose your
mutual fund scheme know well the policy/scheme details
Mutual funds, as we all know, are a pool of capital by several investors sharing common financial goals. The investors here can be any entity, be it individuals, firms or other financial institutions. It is this collective fund that is accumulated and invested in diversified manner. To further manage well these funds, there are fund managers who then park your money into different investment kinds like stocks, equity bonds, etc. The idea of spreading out money into different sorts of money market instruments helps in risk reduction. So in times when one investment is not faring well, the other might do well and keep your returns balanced. And thus, the returns earned are divided and distributed amongst the investors basis their initial contribution.
Coming down to classification of
Mutual Funds, which depend on several criterions say the nature of investment, risk involved, periodicity of payout or time of closure. When talking about time of closure there are 2 types namely, open ended mutual funds and closed ended mutual funds. To state it out rightly the difference between the two is based on the flexibility of sale and purchase of fund units. So, while in open ended mutual funds investors can issue or redeem units anytime as per their convenience, in closed ended ones the unit capital is fixed and sale of only specific numbers is allowed.
Due to the available flexibility in case of
open ended mutual funds, the unit capital keeps varying and the fund witnesses an expansion in size. However in case the management can’t handle and optimize a large size of funds, it can easily put a halt to subscriptions. Whereas in closed ended fund a buying and selling happen through recognized stock exchanges, where the units of the schemes has been listed. But to allow the investors to exit, the fund can list their closed ended scheme on a stock exchange.
While in open ended mutual funds there is much liquidity available and the investors can buy or sell units at Net Asset Value (NAV) declared on daily basis. On the other hand in closed ended funds the subscription is open only during specified period and the exit options are also restricted, these funds don’t see a sudden redemption on a regular basis. The fund managers also stay at ease for the closed ended funds are comprehensive, so whenever you invest in mutual funds, read you scheme document clearly. And in case you are not sure of which scheme to go for, take assistance from investment
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.