Here’s Everything You Need To Know About Open-Ended Funds

There are a number of different investment options available in the market today. Out of which, funds like mutual funds and hedge funds are some of the most popular wealth-creation vehicles. They owe their prevalence to the stable rate of returns that they provide. 

What are the different types of funds available today?

There are typically two types of funds available in the market today, close-ended funds and open-ended funds. While a close-ended fund allows people to invest only at the start of the fund’s investment strategy, an open-ended fund provides much greater leeway for the same.

The majority of the funds present in the market today are open-ended funds. If you wish to know more about them, read on -

 

What exactly are open-ended funds?

Open-ended funds are essentially financial institutions that pool money from multiple investors and then invest the same in various different financial assets with an aim to earn high returns.

Contrary to a close-ended fund, open-ended funds allow you to withdraw or deposit your capital in the fund’s investment strategy at various pre-defined time intervals. This gives your investment better liquidity and thus allows you to manage your funds quite efficiently. The shares of open-ended funds are bought and sold at their Net Asset Value that fluctuates daily. The shares of open-ended funds can be issued an unlimited number of times. The majority of mutual funds and hedge funds present in the market today are a form of open-ended funds.

Just knowing about open-ended funds is not enough. There are a few other things as well that you must keep in mind, such as -

 


1)      The updating of NAV of an open-ended fund

The Net Asset Value or the NAV of an open-ended is only updated once a day after the markets have closed. Due to this, day traders find it difficult to understand the profits and losses of their investment before it is too late.

2)      The returns to expect from open-ended funds

An open-ended fund provides more security but also offers lower returns when compared to close-ended funds. Open-ended funds are required to maintain a large cash reserve in order to meet the investor demands of withdrawals. This limits the amount of money the open-ended funds get to invest and as a result, they offer a lower ROI.

3)      The commissions charged by these funds

Open-ended funds typically charge high commissions if you opt for an actively managed investment plan. In an active investment plan, the investor gets to choose the type of asset allocation they are most comfortable with.

Close-ended funds vs Open-ended funds; which one to invest in?

There are a few differences between close-ended funds and open-ended funds. Here’s what you need to know to choose the right investment option: -

1)      Investments in open-ended funds are highly liquid in nature. Thus, if you are looking to deploy time-sensitive investment strategies, you should definitely consider investing in an open-ended fund.

2)      Open-ended funds do not require you to invest through a broker while a close-ended fund does. Also, you might need a Demit account to invest in the latter. 

3)      There are many times when the investors receive the intrinsic value price of the assets underlying in their portfolio. This usually occurs at the time of selling assets that are acquired by investing in an open-ended fund.

 Please Read The Original Post Here: Here’s Everything You Need To Know About Open-Ended Funds


We hope this article helps you better understand open-ended funds. 

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