Mutual funds are differentiated using a lot of factors, one
of which is categorizing it structure-wise. That divides mutual funds into 2
categories; Open-ended and closed-ended. The fundamental difference between the
2 arises when we talk about flexibility and ease of sale. Here’s what they are;
Open-ended Mutual
Funds
These are the kind of mutual funds that do not trade in the
open market. They don’t carry any limit as to how many units they can issue.
Their NAV changes every day according to the market and the prices of the
stocks and shares in the fund. These funds are traded on-demand at their NAV
which depends on its underlying securities and is estimated at the end of each
day. If you want to buy its units you need to buy it directly from the fund. Open-ended
fund investments are priced at the fair market value which is the closing
market value of listed public securities. Also, these funds don’t have any
fixed maturity period.
Why open-ended mutual funds are beneficial;
● They are highly liquid since you can redeem them anytime.
● The past performance of these assets is easily available,
so you can easily make a well-informed decision of investing in these.
● It is a good option for salaried employees since these can
initiate SIPs into the fund of your choice.
Closed-ended Mutual
Funds
Closed-ended mutual funds issue a fixed number of units that
are then traded in the stock market. These are launched through NFO and then
bought or sold in the stock market like a regular stock. The value of this kind
of a mutual fund is based on the NAV, but the actual price is decided by demand
and supply since it is traded at a higher or lower price than its real value.
So these funds can be bought and sold at premiums or discounts to their NAVs.
The units are bought and sold through a broker and have a fixed maturity
period.
Here are a few advantages of dealing in closed-ended mutual
funds;
● The investors are not allowed to redeem closed-ended
mutual funds except when the maturity date expires. Hence, it helps investors
have a stable asset base which does not have any frequent redemptions. This
helps the investor make a profitable investment strategy without having to
worry about inflows and outflows.
● These funds trade in the market almost like equity shares.
This gives an opportunity to the investors to buy or sell the units at the
real-time price which can be above or below the NAV. In order to trade,
investors can also use stock trading strategies like margin trading or limit
orders.
● The investors can enjoy both liquidity and flexibility
with closed-ended funds. That can use real-time prices to sell and buy their
funds according to the market. Also, since real-time information is available
of all the stocks, the investors have the flexibility to decide what to do with
their investments.
We will be happy to help you to select your mutual fund plan. Get more details here: Mcx Tips, Derivative-Free Trial, Stock tips Call on:9977499927
Capitalstars is a SEBI registered investment advisor. Schedule a call with Capitalstars investment consultant or drop a mail at backoffice@capiltalstars.in and we will get in touch with you. You may also call us on 9977499927
Investment trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance. CapitalStars Investment Adviser: SEBI Registration Number: INA000001647
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