A mutual fund is a financial route that allows investors to invest in various financial instruments and earn returns. There is more than one mutual fund available in the financial market. You can opt for any of them, depending upon your current financial situation and financial goal. A professional fund manager or an asset management company (AMC) collects investments from several individuals with a common objective through a mutual fund scheme.
Mutual funds are based upon Asset Class, Investment Goals, Risk Appetite, Specialization, and Structure. Mutual funds based on Structure are quite different from other types of Mutual funds. There is flexibility for trading individual mutual fund units.
There are Open-ended funds, Close-ended funds, and Interval funds under The structural classification. It is of utmost importance to understand them before deciding on an investment.
When you say mutual funds, it means open-ended funds. They are not tradeable in the open market. There is no limit for issuing units. There are everyday changes to NAV due to fluctuations in the share/stock market and the fund’s bond prices. The buying and selling of open-ended mutual fund units depend upon their Net Asset Value or NAV. The performance of the underlying securities determines NAV.
This fund does not have a maturity period. There is no maturity period for this mutual fund scheme. You can buy or redeem units from the fund house at the scheme’s existing NAV. But you can do it on any working day.
When you say closed-ended funds, they are equity or debt funds where the fund house issues fixed units during launch. The launch of these funds will be through a New Fund Offer (NFO) and later on traded in the Stock Market. You can’t buy or redeem units when the NFO period closes. It comes with a fixed maturity period. Simply, a closed-ended fund becomes close after its launch until the maturity period. The actual price of this type of fund is dependent upon the Net Asset Value. The traded price may go up or down depending upon the demand and supply of the units.
Interval funds offer the perfect combination of both closed-end funds and open-ended funds. They don’t facilitate you buy and sell the units of the fund frequently, just like closed-end funds. They may get listed on a stock exchange similar to other closed-end funds. You may redeem the units at prevailing Net Asset Value (NAV) from the fund house during the specific period. They are almost similar to Fixed Maturity Plans (FMPs). You will have to keep your funds invested for a fixed tenure that you can’t redeem before maturity. With a robust investment strategy on an interval fund, you can make better returns.
The Final Thought
Although mutual funds are investment tools, while mutual funds based on structure are their types, there is more than one type under structural classification in Mutual Funds: Open-Ended Funds, Close-Ended Funds, and intervals Funds that come with various characteristics and benefits.