Friday, 5 November 2010

Open Ended Mutual Funds

Mutual funds can be classified under various categories. It can be classified according to the time period of entry and exit, Asset classification, Investment strategy and geographical classification. According to the term of mutual fund it can be classified into open ended and close ended Mutual funds.

Open ended mutual funds

You can purchase an open ended mutual fund at any time either at the Initial fund offer or after the IFO period. You can buy it at face value on IFO and Net Asset Value after the Initial fund offer period. As the term referred, the entry in the mutual fund and exit from the mutual fund at any time the investor needs to do so. This type of funds does not have a stipulated maturity.  There may be an entry load and exit load according to the term of mutual fund. This is varying from fund to fund. Majority of Mutual funds are in this scheme.

Advantages of Open ended Mutual Funds

First and foremost advantage of open ended mutual fund is that and investor can purchase or redeem at any time he or she like to do so.

It is more flexible and liquid. You can transfer or exchange most of these mutual funds among funds without any fees.

It gives you diversification. Normally this type of mutual funds deposit in a variety of stocks and the investor gets the benefit of investing in various stocks.

You can invest in monthly installments through Systematic Investment Plan (SIP)

Disadvantages of open ended mutual funds

The main advantages of mutual this type of mutual funds may become the disadvantages also. Due to the flexibility of entry and exit there may be a sudden outflow through redemption. So the fund should keep a cushion of reserve fund to pay off the redemption request or there should be sudden exit of invested instruments or stocks to redeem the fund.

The NAV (Net Asset Value) of the fund may fluctuate up or down

Even if there are some disadvantages, open ended mutual funds are comparatively good and useful to invest. It is suitable for a growth of investment when the market is up. When the market shows a high peek some investors wisely switch over the fund to some debt fund to protect the investment. Any way you should take care to handle with mutual funds, even if it is safer than direct investment in stocks. Get advice from a reliable broker or financial planner before selecting and investing in any mutual funds.

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