We all know that open ended funds are different from closed-ended funds. Closed-ended funds are funds that have a fixed number of shares. These funds can be divided into two types:
Closed End Funds:
These funds are closed end funds. It means that there is a fixed number of shares of the fund. If you want to buy the fund then you need to buy the shares.
Open End Funds:
Open-ended funds are funds that are not fixed in terms of the number of shares. This means that you don’t need to buy the shares to invest in the fund. You just need to pay the subscription fee and if you want to invest more, then you can do it.
How Do Open Ended Mutual Funds Work?
Open-ended mutual funds are different from closed-ended funds. The shares of these funds are bought and sold on the stock market. But in open-ended mutual funds, you don’t buy the shares. It is a subscription-based fund.
So, this is the difference between open-ended and closed-ended funds. Now, let us understand what is open-ended mutual fund?
What Is An Open-Ended Mutual Fund?
An open-ended mutual fund is a fund that is not limited by the number of shares.
These funds can be divided into two types:
- Unit Trusts:
In unit trust funds, the investor invests his money in a single company. So, in this fund you will be investing in one company only. But this is not the case in open-ended mutual funds. You can invest in multiple companies.
- Unit Linked Funds:
If you want to invest in a fund that is linked with a company, then you can invest in it. In this fund, you will be investing in a company and you will also be investing in a fund that is linked with it.
In unit linked funds, you will get returns on your investment. The rate of return depends on the performance of the fund.
Benefits of Investing In Open-Ended Mutual Funds
There are many benefits of investing in open-ended mutual funds.
Some of them are:
- You can invest in multiple companies:
If you invest in a unit trust fund, then you will be investing in a single company. If you want to invest in more than one company, then you can invest in open-ended mutual funds. So, it will help you to diversify your portfolio.
- Low Cost:
Investing in open-ended mutual funds is cheaper than investing in closed-ended funds. You don’t need to pay any subscription fee to invest in these funds.
- More Returns:
The returns of these funds are higher than the returns of closed-ended funds. This is because of the presence of multiple companies in the fund. You will get more returns if you invest in an open-ended fund.
- Diversification:
Open-ended mutual funds help you to diversify your portfolio. It is a good option for those who want to invest in multiple companies.
- Low Volatility:
These funds are less volatile than closed-ended funds. The returns of these funds are low and stable.
- Low Management Cost:
These funds are managed by professional fund managers. The cost of management is low.
- Accessibility:
You can buy shares of these funds online. You can also sell them if you want.
- Tax Benefits:
If you are investing in open-ended mutual funds, then you can claim tax benefits.
- Higher Liquidity:
You can sell your shares at any time. In closed-ended funds, you.