Understanding The Structure Of Mutual Funds

Over time Mutual Funds have emerged as the most preferred investment mode. The primary factor behind its popularity is the flexibility it offers. Investors can invest with a minimum investment of Rs. 500. They are divided into two structures: Open-Ended and Close-Ended Mutual Funds.

The flexibility and ease of sale or purchasing fund units differentiate the two. Let us learn in detail about this Mutual Fund Investment:  

Close-Ended Funds

These funds issue a fixed number of shares on the stock exchanges. They function more like Exchange-Traded Funds than Mutual Funds. They are launched through Initial Public Offering. They behave like a stock, where the units are traded in the open market. The unit value of such schemes depends on the Net Asset Value. However, they get affected by the demand and supply as they are generally traded at rates below or above their actual value.

Hence, Close-Ended Funds can be traded at discounted or premium NAV rates. The brokers sell and purchase these funds. They also carry a fixed maturity period of three to six years. However, they do not support a Systematic Investment Plan concept. Investors have plenty of takeaways from Close-Ended Funds:

They do not sell in a panic. Investors cannot redeem or sell the funds when they underperform. Instead, they exchange them on the stock exchange with a buyer keen on such funds.Investors can invest in Mutual Fund that provides differentiated objectives or income that may be unavailable in the open-ended marketInvestors can spend 5 to 10% of the desired amount in each close-ended scheme. However, they need to be aware of the timing of investment to acquire adequate returns

Open-ended mutual funds

It is the most common online Mutual Fund. They allow investors to enter and exit the fund at their convenience. Plus, there are no restrictions on the number of shares, investors, or fund size unless the fund manager decides on them. Also, the NAV rate changes daily, and they do not come with a fixed maturity period. What benefits can investors earn through Open-Ended Funds?

They offer high liquidity because you can redeem the units conveniently. Moreover, investors regain these units on the prevailing NAVYou can track the records and compare the scheme to its peers. Hence, this way, investors can make a well-informed decisionYou can also make SIP Investment, thereby avoiding the risk factor, especially for salaried investors

Investing in Open-Ended or Close-Ended Funds also depends on factors like risk appetite and goal emergency. So, investors should be well-versed with the market scenario before taking the plunge.