Benefits of Open Ended Mutual Funds

Open ended Mutual Funds are a great sort of investment mode which is free from the traditional constraints of regular Mutual Funds. Open ended Mutual funds are basically a type of Mutual funds which do not have any restrictions on the number of shares that can be issued by the fund. There is no limit to the shares in this special kind of investment vehicle. These constitute the majority of mutual funds available in the market as of now. So, if you don’t like limitations too, head down to know more about this nice investment option.

As described above, open ended mutual funds facilitate issuing of unlimited shares of investment made in stocks and/or bonds. New shares are created when one purchases them, while they get removed from circulation when sold. Net Asset Value is the key concept, which is based on the total value of fund’s underlying securities, calculated at the end of the relevant trading day.

In case of redemption of a large number of shares, it can be done that in order to pay the investor, the fund may sell some of its investments. Also, open ended funds may stop accepting any new investments from the new investors when the total assets of the fund become too large to execute, and even from the existing investors when the issue runs out of hand. This signifies the popularity and growth of the mutual ended funds.

  • Open ended & Closed ended Mutual Funds

All types of mutual funds are basically managed by Portfolio managers. They also reduce or remove risk associated with the securities through diversified investments, lower investment costs and operating costs.

Yet the fundamental difference remains, that the open-ended fund has unlimited shares that can be issued by the fund. The shares in case of Closed-end Mutual funds are generated through IPO, i.e, Initial Public Offering, and then, are sold in open market, mostly.

Open-ended funds are more liquid than their counterparts, while they’re not traded on an exchange like the latter. Even the pricing with regard to NAV differs in the two, the former adhering to the same whereas the latter provides for certain discounts based on the supply and demand.

The feature of redemptions makes it important for Open-ended funds to maintain proper cash reserves in order to meet the redemption requirements. Since there is no requirement of that sort in the closed-end funds, other investments can be made in that sector. Additional costs may be levied in the closed-end funds, and they also offer better returns while their counterpart offers a better degree of security.

Benefits of  having Open ended mutual funds

  1. Liquidity-
    The feature of redeeming your shares is readily available in Open-ended funds, thus making it highly liquid as compared to other terms of investments. After following the process of selling your shares, you can easily get the relevant amount in a matter of a few days.
  2. Diversity-
    There’s also a great degree of diversification in the field of Open ended mutual funds. With such an immense variety available in stocks, bonds and other securities issued by companies and/or governments across the nation.
  3. Security-
    Apart from the regular advantages, one additional advantage of the open ended mutual funds is the degree of security to the shareholder. Due to the availability of multiple stocks, loss in one or a few doesn’t tend to jeopardize the interests of the consumer to an extent that can’t be covered by the progress in another set of stocks. This ensures a better sense of security as compared to the other type of investment modes available out there.
  4. Family of Funds-
    The growth in the sector of mutual funds has arisen due to the varying needs of the consumers. This has led to a situation where multiple types of mutual funds are available in the market, to which people subscribe as per their needs. Therefore, there is due acknowledgment of different interests on the basis of which different open ended funds are enrolled for. However, only recently has the issue of evolving interests been addressed with the inception of Funds Family which the companies create to accommodate multiple mutual funds with the different investment objective. It saves the complications and cost of switching from one to another mutual fund in a traditional fashion.
  5. Management-
    Despite the facility of self-management, there are Fund managers available to make it more convenient for the investors to make the maximum benefits out of any investment. Self-management of these funds can be really time-consuming and therefore, to save time, these professionals can be hired.

Open ended mutual funds offer a nice mode of investment to the people who like to go with cost-effective and easy to understand investment schemes. It not only offers a good variety with regard to the objectives of making the investment but also enables the investors to adapt to their ever-changing needs in real time.

By | 2018-01-04T08:32:36+00:00 December 27th, 2017|Mutual Funds|0 Comments

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Pulkit Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Pulkit is a veteran CA with over 10+ of experience.

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