Types of Mutual Fund Scheme

Meaning of Open Ended Mutual Fund Scheme

  1. An open-ended scheme is a scheme of mutual fund that allows the investor to enter and exit anytime at his convenience.
  2. The majority of mutual funds are open-end.
  3. It is a type of mutual fund that does not have any restriction on the amount of shares the fund will issue. If demand is high enough, the fund will continue to issue shares to investors.
  4. An open-ended fund is a collective investment scheme which can issue and redeem shares at any time. An investor will generally purchase shares in the fund directly from the fund itself rather than from the existing shareholders
  5. Open-end funds also buy back shares when investors wish to sell.
  6. In case of open ended schemes, investors can buy the units even after the NFO period is over, which is offered at par value of Rs. 10/ unit.
  7. Thus, when the fund sells units, the investor buys the units from the fund and when the investor wishes to redeem the units, the fund repurchases the units from the investor which can be done even after the NFO has closed.
  8. This buy / sell of units take place at the Net Asset Value (NAV) declared by the fund.

Meaning of Close Ended Mutual Fund Scheme

  1. A close-ended scheme is a scheme of mutual fund that does not allow the investor to enter and exit anytime at his convenience.
  2. That means the investors have to invest only during the
  3. NFO period; i.e. as long as the NFO is on or the scheme is open for subscription.
  4. Closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO).
  5. Once the NFO closes, new investors cannot enter to buy the units of shares, nor can existing investors exit, till the term of the scheme comes to an end.
  6. In order to provide entry and exit option, close ended mutual funds list their schemes on stock exchanges.
  7. The stock prices of a closed-end fund fluctuate according to market forces (supply and demand) as well as the changing values of the securities in the fund’s holdings.
  8. This provides an opportunity for investors to buy and sell the units from each other like buying / selling of shares on the stock exchange done through a stock broker.
  9. Sometimes, close ended funds also offer ‘buy-back of fund shares / units”, thus offering another avenue for investors to exit the fund.

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