Table of Contents
Introduction
Open ended funds are always available for investment and redemption, hence the name. In India, open ended funds are the most frequent type of mutual fund investing. These funds have no lock-in time or maturities, thus they are available indefinitely.
Dive into the detailed narration to understand the benefits of open-ended funds. So, what is open ended mutual fund?
What are Open Ended Funds?
An open ended mutual fund is a mutual fund scheme open for selling or buying anytime. This fund offers investors a cost-effective and seamless way to pool money. Investors can buy a diversified portfolio that reflects an investment objective. They can invest objectives by investing for income or growth in small-scale or large-scale organisations.
Open ended funds can also target investments in specified sectors or companies. This diversification helps reduce risks associated with investments. One does not require too much money to get entry into this type of fund. So it is easily accessible to investors.
How do Open Ended Funds Work?
In this fund, investors can redeem or purchase units at the existing NAV or Net Asset Value on any working day. The NAV gets determined by the performance of the fund's underlying securities. Now, how do these funds work?
In simple words, the open ended mutual fund meaning defines that these mutual funds are floated through NFO. Investors can sell or buy units after the NFO period ends, considering the open-ended mutual funds.
No limitations are there on the units' number that one can issue. Another feature of this fund is that it does not have a maturity period. But investors may require paying the exit load if they wish to sell their units in the scheme.
Advantages and Disadvantages of Open Ended Funds
Below is the list of advantages or perks of open ended funds:
● Investors can redeem units, so it offers maximum liquidity
● They can choose between SIP, SWP, or STP (investing through SIP builds a corpus from scratch)
● They can learn about the fund's historical performance over multiple market cycles
● Below is the list of drawbacks or cons of these funds:
● NAV fluctuates in this scheme, so open ended funds can be risky sometimes
● Investors cannot share opinions as these funds already appoint proficient fund managers for decision-making
List of Open Ended Funds in India
Tabulated below is the list of open-ended funds in India:
|
Name Of The Scheme |
Returns |
||
|
One year |
Three year |
Five year |
|
|
-12.48 |
10.99 |
18.18 |
|
|
15.05 |
8.63 |
10.81 |
|
|
16.21 |
9.07 |
8.79 |
|
|
4.33 |
18.23 |
16.70 |
|
|
-10.15 |
8.56 |
15.53 |
|
|
-0.50 |
12.07 |
17.47 |
|
|
-2.12 |
11.54 |
15.13 |
|
Key Differences between Open Ended Funds and Close Ended Funds
What are the differences between open-ended fund and closed-ended funds? Mentioned below are the differences between closed-ended and open ended mutual funds:
● Open-ended funds offer high liquidity, whereas close-ended ones have no liquidity during the lock-in period
● One can invest through SIP or in a lump sum, while close-ended funds allow you to invest during the NFO (new fund offer)
● A small investment is allowed in open-ended funds (starting from Rs. 500), but a minimum of Rs. 5000 is required for close-ended funds
● Unlike close-ended funds, open ended mutual funds allow investors to check track records of schemes performances
● Open-ended funds allow you to take advantage of the rupee cost averaging of unit prices, unlike close-ended funds
Types of Investments in Open Ended Funds
What are the best open-ended mutual fund examples? Well, these funds are suited for regular equity funds, liquidity funds, and debt funds. Open-ended funds are categorised into different types based on asset class, structure, and speciality. Depending on the asset class, open ended mutual funds are categorised into the following types:
● Large-cap fund
● Multi cap fund
● Large and mid-cap fund
● Small cap fund
● Mid-cap fund
● Contra fund
● Value fund
● Equity-linked saving scheme
● Sectoral fund or thematic fund
Depending on the specialty, these funds are categorised into the given types of open-ended mutual funds:
● Fund of funds
● Retirement funds
● Index funds
● Children funds
● Asset allocation funds
● Commodity funds or hedge fund
Here are the types of debt mutual funds:
● Ultra short-duration fund
● Overnight fund
● Short or Medium duration fund
● Liquid fund
● Money market fund
● Long-duration fund
● Credit risk fund
● Corporate bond fund
● Banking and PSU fund
● Balanced fund or hybrid fund
How to Evaluate Open Ended Funds before Investing?
According to the open ended funds meaning, one can invest in these mutual funds either during or after the NFO period. While investing during the NFO period, investors must allot units depending on the face value or par value. But if you want to invest after NFO's subscription period, investors are allotted units depending on prevailing NAVs.
Understanding the Role of Premiums and Discounts in Open Ended Funds
When the ETF price is above the NAV, ETF may be trading at a premium. On the contrary, when the price is below NAV, it trades at a discount. In short, ETF prices & NAV stay close. But when financial markets are volatile, they reflect changes in the market sentiment. NAV might take longer to adjust, resulting in discounts and premiums.
What Are The Things To Know Before You Trade In Equity?
Equity is the primary asset class, and it helps diversify an investment portfolio. Trading in equity requires a Demat account & a trading account. As soon as you have both these accounts, bidding for stocks becomes easier. Investors need to bid by offering a specific price. When the price matches the one asked by sellers, trading will occur. But when multiple investors bid on the stock, the first bidder gets it.
Trading in equity means using a fixed-cost source of finance like debentures, preference shares, and long-term loans in capital structures.
So, before trading in equity, you need to know a few things.
● Understand what stocks do
● Learn the ins and outs based on the P/E ratio (or price-to-earnings ratio)
● Make sure that you have digital trading activated on your account
● Know that different trades have different tax implications
● Activate your Demat account and get into the world of online trading
So, equities can help understand the ownership position in any asset. It is the ownership stake in any organisation. An investor may buy equity to gain from profits. So, if you have 10% of the equity in your company, it means you own 10% of that company.
Conclusion
So, you have now understood the several advantages, disadvantages, and other aspects before investing in an open ended mutual fund.
Frequently Asked Questions
One can invest in an open ended mutual fund during NFO or New Fund Offer period or when the NFO closes. While investing during NFO, you get allotted units depending on face value or par value. While investing after an NFO subscription, you can be allotted units depending on prevailing NAVs.
Yes, investing in an open ended mutual fund offers security compared to closed-end funds. Since management continually adjusts holding to suit investor demands, the funds' fees are higher than any other fund.