Understanding Mutual Fund Types :

  Understanding Mutual Fund Types

Classification of Mutual Funds

Mutual funds come in various types, making it essential to classify them for better understanding. 

Let's break down the main categories.

Functional Classification : 

Functional classification categorizes mutual funds based on their basic characteristics. 

There are three primary types:

 A. Open-ended Mutual Fund

An open-ended fund allows investors to buy and sell units at any time. When you buy units, you purchase them from the fund, and when you sell, the fund buys them back. The price is determined by the Net Asset Value (NAV) per unit, calculated by dividing the market value of the fund's assets by the number of outstanding units. The number of units can fluctuate, offering liquidity and flexibility to investors.

Key Benefit: Liquidity

B. Close-Ended Mutual Fund

In a close-ended scheme, investors can buy units during the Initial Public Offering (IPO) phase. The unit capital is fixed, as a fixed number of units are sold during the IPO. Unlike open-ended funds, investors cannot buy or redeem units directly from the fund. However, these funds are listed on stock exchanges to provide liquidity, with the number of outstanding units remaining constant.

Key Difference: Fixed Fund Size

 C Interval Fund

Interval Schemes combine features of both open-ended and close-ended funds. Units can be bought and sold at Net Asset Value (NAV) during specific intervals, offering flexibility. Investors can trade units on the stock exchange or redeem them during predetermined periods, typically mentioned in the fund's annual report. This provides liquidity at regular intervals.

Advantage: Flexibility and Liquidity

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