A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.
What are the different types of Mutual Funds?
Mutual Fund schemes may be classified on the basis of their structure and their investment objective.
- Open-ended Funds – An Open-ended Fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices.
- Close-ended Funds – Closed-end Funds have stipulated / perpetual life based on the constitutive documents of the funds. These funds open for subscription only during a specified period and investors can initially invest in the funds at the time of the subscription and thereafter they can buy or sell the certificates of the funds on the Stock Exchanges. The market price at the stock exchange could vary from the funds’ NAV due to stock market factors.
We hope that by reading the answers to the questions above you have a better understanding of mutual funds and are ready to enter the world of investing.