Open ended mutual fund: How it works

Mutual Funds can be segregated as per their underlying asset, style of investing, or structurally. Looking at mutual funds from a structural point of view, they are classified as open-ended mutual funds and closed-ended mutual funds.

Open-ended mutual funds are mutual funds where the units can be issued and redeemed at any time. Open-ended mutual funds do not have any defined lock-in period, except ELSS funds. They do not have a defined maturity period. Open-ended mutual funds have no limits on the number of mutual fund units that can be issued. Open-ended mutual funds may be listed on the stock exchange. Mutual fund units are purchased and redeemed on demand at the NAV (net asset value) which fluctuates every day.

Open-ended mutual funds may have an exit load depending on which category they belong to. Open-ended mutual funds are more popular than closed-ended mutual funds among retail investors. Open-ended mutual funds are available for subscription, repurchase or redemption on a continuous basis. Open-ended mutual funds, for example, could be a hybrid fund, which invests in both equity stocks and bonds.

How does open-ended mutual fund work?

An open-ended mutual fund is launched in the market by announcing a New Fund Offer (NFO). As per SEBI regulations, an NFO is open for a maximum period of 15 days. The units are offered at predefined offer price in NFO. An investor can purchase or redeem units of an open-ended mutual fund at any time after the closure of NFO based on their NAV (Net Asset Value)

If an investor is looking for redeemed and to diversify their investment portfolios, these funds could be an option. An investor can browse through an open-ended mutual fund list to evaluate the performance track record across different market cycles. This helps investors make a well-researched decision.

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