If you are wondering about what is open-ended mutual fund? then you are in the right place. We will not only answer the question in great detail, but we will also talk about the different benefits that are associated with an open-ended mutual fund scheme. Here we go starting from the very basics.
What is Mutual Fund? How does it Work?
A mutual fund is a method that is used by any investor who wants to invest in the market. It is a way of investment when people purchase units of different mutual fund schemes knowing that their money will be used to form a part of any company’s capital.
When you are putting your money into mutual funds you need to have an idea where it will be used for. It can be used to purchase stocks, bonds or can even be used in debt funds, other instruments in the money market and other assets as well.
Mutual funds are usually offered by various fund houses and they are managed and operated by competent money managers or fund managers. They will decide on behalf of you about, where to invest. Investing instruments depends on the structure of your portfolio and what you expect out of your investments in years to come.
Mutual funds can be categorized into two sets – Open-ended mutual funds and close-ended mutual funds.
The two major categories of mutual funds investments are the stock and the bonds. The stocks are again broken into some other categories – such as the large-cap, mid-cap, and small-cap. You need to plan your portfolio depending on what are you looking for as an outcome of your spends on the stocks. It can be for growth, growth and income and long term value also.
What is Open Ended Mutual Fund?
Open-ended mutual funds are the funds that are open to buy into or sell out anytime for any investor. So, to make it easy, you or any interested investor can invest in open-ended mutual funds at any given point of time. You or they can sell out and exit the fund also at your will.
In close-ended mutual funds, the entry and exits are restricted and it has often to do with time. If you want to invest, you got to do that in a specific time period. After the time is over, no new investment will be entertained.
So, from this, you can understand that, as the name goes open-ended mutual funds are a lot more open and flexible in terms of entry and exit compared to their close-ended counterparts.
What are the Benefits of Open-Ended Mutual Funds? 8 Clear Benefits
When you look at the benefits, it becomes quite clear why open-ended funds are preferred by the common investors. They have clear 8 benefits that differentiate them from others.
# 1 Easier to Redeem
Open-ended mutual funds are those which bring in the investors’ money and uses to invest in a variety of money market instruments. These funds can issue as many numbers of shares and can redeem those at any time or any day. There is no specific hard and fast rule regarding transactions of the units bought and sold. The fund hoses offer these units as long as investors want to buy the units of any particular scheme.
# 2 Price of the Units
The units in open-ended mutual funds are priced every day depending on the prevailing market price. The prices of the shares are usually known as NAV (Net Asset Value). The net asset value of the shares is usually considered the one at the end of the day, which is at the closing of the market.
# 3 Diversified Portfolio
If you invest in open-ended mutual funds, then it is beneficial for you. In such a case, the portfolio of the investors has a large variety of funds that they have invested in. it also helps you to invest in low-cost methods in various schemes keeping your investment plans in mind. Your portfolio manager can structure your portfolio in a better way. Your file can be a mixture of both large-cap and small-cap investments.
# 4 Differential Targets for Investment
These funds provide scope to target various investment schemes and units. Your money can be put into different industries and even into capitals of companies belonging to different countries. Another benefit as an investor to open-ended funds is that you do not need to have large amounts for investment.
Any regular person can invest such funds with as little resources as possible. This is the reason why they are approached by all kinds of investors and at all levels.
# 5 Liquidity is More
These types of funds are more liquid compared to close-ended funds. They do not invest in industries that are not that liquid such as real estate, illiquid securities or stocks of the market. You can do your research and can plan or buy stock without the help of a broker. This helps you to save on the service charges that are charged by the broker or any of the Asset Management Houses.
# 6 Security is Higher
The security of investing in open-ended funds is usually much higher than that compared to the close-ended mutual fund schemes. This is because the open-ended funds maintain large cash reserves which are used at the time of redemption of shareholder’s funds. Thus, you do not need to worry about the payment on redeeming the units which you hold.
# 7 Simpler Investments
As investment in mutual funds is very easy, it becomes simpler for the investors to put in their money in them. Your portfolio is more or less managed by the fund houses and you might not require specially qualified portfolio managers. This will again make it less costly for you to invest in the market.
# 8 Sector-based Focus
Putting your money into open-ended mutual funds will also help you to focus in particular sectors if you wish to. You can choose to invest in those units or schemes which deal with different sectors or industries like healthcare, financials, technology and also social media which has come up these days.
It is a good idea to purchase stocks, bonds, and securities in the market. This will help you to roll your money and get you greater values or income in times to come. A mutual fund is just another way that will help you to put in your money in the correct stocks and without you getting into too much of hassle. It is always advised to have a good knowledge regarding the present status of the market and analyze its future.
You need to plan your portfolio on the basis of what you expect and where you want to reach by investing in the money market. If you are looking for growth then it will be planned in a different way than if you are looking for both growth and income. Ask your asset manager to guide you on this as they have the current knowledge about the workings of the market.
When and in what you should invest in is best known for them. Keep your eyes open and try and get in as much knowledge as you can get regarding the stock market. It has been that once you have entered into this investment policy, you will gain interest automatically. Keep a lookout for the best schemes that the fund management houses are launching or working with.
Last but not least, do not forget to take proper advisory if you are not a pro. Mutual funds investments are subject to market risks at the end of the day.
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