What Is a Mutual Fund
A mutual fund is an indirect way of investment into the capital markets. A mutual fund is a fund which pools the money from the public who are interested to invest in the capital market. The money which is pooled is invested into stocks, debentures and other capital market platforms. There are different types of mutual funds: –
Open End Mutual Funds
These are the mutual funds which do not have a specific entry or an exit time mentioned by the fund. As an investor, if you wish not to block your funds in a mutual fund, then open end mutual funds are the best option. When the investment is made in the open end mutual funds, the units for your investment are offered according to the current net asset value of the fund. Similarly, when you exit the fund, the payment is made depending upon the net asset value of the fund which depends upon the performance of the fund in the capital markets.
Closed End Mutual Funds
In these mutual funds, the units of the mutual fund are issued only once, i.e. during the initial public offering. The units or the shares issued during the initial public offering cannot be sold back to the mutual fund company, instead can be sold to another borrower in the market. The selling price of the fund could be at a premium, depending upon the fund performance. This fund is beneficial for those who wish to invest the money for a specific period of time.
Unit Investment Trusts
This is a type of mutual fund scheme where the shares of the mutual funds are issued only once which is during the initial public offering. In this mutual fund if one wishes to redeem the shares, it can be redeemed with the mutual fund or also can be sold in the market.
Exchange Traded Funds
These are the type of mutual fund schemes which involve the characteristics of both the open ended and the closed ended mutual funds. It has the characteristic of the closed ended fund because an Exchange traded fund trades at the priced determined in the market. It has the characteristics of a open ended fund because the payment made to the shared holders is similar to the net asset value of the fund.
These are the different varieties of mutual funds available in the market. The platforms in which the mutual funds invest include money market funds, equities or shares, debentures, hybrid funds and others. It is very beneficial to invest in mutual funds, if you lack expertise in trading in markets and wish to earn more returns in the market.