Mutual Funds, as explained in the previous article, are basically a corpus of money accumulated from a large group of small and/or individual investors so as to be utilized as an investment in securities such as stocks, bonds, money market instruments and other financial assets with the purpose of saving and increasing the principal amount. Moreover, investing in Mutual Funds is definitely a smart thing to do and in fact it could be as easy as buying bonds or shares online.
But, is it safe to invest in Mutual Funds?
Well, of-course investing in Mutual Funds is safe. As a matter of fact, Mutual Funds in India, are registered with SEBI (Securities and Exchange Board of India) that completely analyses and regulates the security markets before granting permission to the companies for the collection of funds from the investors. Furthermore, the investors have the authority and liberty to sell out their Mutual Funds’ shares whenever they need to, therefore making the entire concept of mutual Funds in India, not only safe but convenient as well.
Can the Mutual Funds in India be further categorized?
Yes, they can. In fact Mutual Funds can primarily be allocated into five categories:-
- Types Of Mutual Funds Based On Structure
- Types Of Mutual Funds Based On Asset Class
- Types Of Mutual Funds Based On Investment Objective
- Types Of Investment Based On Specialty
- Types Of Mutual Funds Based On Risk
All of the aforementioned categories can further be differentiated into several sub-categories. Nonetheless, we will only discuss about the types of Mutual Funds based on Asset Class within this article. There are three types of Mutual Funds based on Asset Class:-
Open-Ended Funds: These are basically the funds in which units are forever open for purchase or redemption with all purchases/redemption of these fund units being made at prevailing NAVs. Furthermore, these fund units come irrespective of any fixed limits as on the quantity or period of the investment. They also tend to be actively managed by a fund managers who allocate the investments onto different financial securities, hence come with an additional charge. They are an ideal investment typically for the people who seek good returns on investment along with liquidity.
Close-Ended Funds: These type of funds allow the purchase and redemption of the fund units only during the initial offer period and at a specified maturity date respectively. Unlike open ended mutual funds, in order to provide for liquidity, these often need to get listed for trade on a stock exchange and cannot be sold back to the mutual fund company, once the units or stocks are bought. Instead, they need to be sold through the stock market at the prevailing price of the shares.
Interval Funds: These Mutual Funds exhibit the features of both open-ended and close-ended funds. They are periodically opened for repurchase of shares during the fund tenure by the fund management company itself. The unit-holders can offload their purchased shares in favour of the fund during these intervals.
Keep an eye for our next article as we disclose the traits of other four types of Mutual Funds and learn to invest smart.