Mutual Funds

Types of Mutual Funds

There are two types of Mutual Funds:

Closed-Ended Mutual Funds

  1. A closed-end fund is generally referred to as “Closed-Ended Company”.
     
  2. These funds sell a fixed number of shares and are launched through an IPO (Initial Public Offering).
     
  3. Once issued, they can be bought and sold at market rates in the secondary market (Stock Exchange).
     
  4. The market rate is announced daily by the stock exchange. Once close-end fund starts trading, their prices are then marked by supply and demand and not by NAV.
     

Open-Ended Mutual Funds

  1. These funds control the mutual funds marketplace in terms of volume, continually creating new units or redeeming issued units on demand.
     
  2. They don’t have a limit as to how many shares can be issued, as more investor’s purchase the funds, more shares are issued also referred to as Unit Trusts.
     
  3. The Unit holders purchase the units of the fund or may redeem them on a continuous basis at the prevalent Net Asset Value (NAV). On the other hand, an open-end fund cannot be watched the way the stocks are, because the trading is not done in open market.
     
  4. These units can be purchased and redeemed through Management Company which announces offer and redemption prices daily.