Different Types of Mutual Funds
Different Types of Mutual Funds
What is Mutual Fund?
A mutual fund is a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. For an individual investor to have a diversified portfolio is difficult. But you can approach mutual fund advisor and can invest in shares. Mutual funds have become very popular since they make individual investors invest in equity and debt securities easy.
When investors invest a particular amount of mutual funds, he becomes the unitholder of corresponding units. In turn, mutual funds invest unit holders money in stocks, bonds or other securities that earn interest or dividend.
Different Types of Mutual Funds
Classification of Mutual Funds
Classification of Mutual Funds in India is done on the basis of their objective and structure. Classification of Mutual Funds in India has helped to categorize them into major types such as Funds of Funds, Regional Mutual Funds, Closed-End Funds, Large Cap Funds, and Interval Funds.
a. Open Ended Scheme: –
Open-ended schemes are those which do not have a fixed maturity period.
You can enter into or exit from the scheme at any time.
Buying and selling of units are related to the Net Asset Value (NAV).
Thus, open-ended schemes offer liquidity, and this is one of the key benefits
Close Ended Scheme: –
b. Close Ended Schemes are those that have stipulated maturity periods (ranging from 2 to 15 years).
You can invest directly in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed.
The market price of the units could vary from the NAV of the scheme on account of demand and supply situations, investors expectations and other market factors.
One of the characteristics of close-ended mutual fund schemes is that they generally trade at discounts to the NAV; but closer to maturity the discount narrows.
Different Types of Mutual Funds
