Mutual fund schemes can be
• Open-ended
• Close-ended.
Open-ended schemes do not have a fixed maturity. Investors can buy/sell units of such schemes from/to the fund itself at prices determined by Net Asset Value (NAV) plus or minus a load, applied either at the point of purchase or sales by the fund. Liquidity in open-end mutual funds is very high.
In case of close-ended mutual funds, liquidity depends on the availability of buyers and sellers in the stock exchange where these units are listed. Thus, liquidity is similar to that of listed shares. Close-ended schemes may be listed on stock exchanges and traded at listed prices. If it is not listed, regular repurchase facility will be provided by the mutual Funds. These prices could vary substantially from the NAV due to investor perceptions, demand and supply situations, etc.
NAV is a common expression in the mutual fund industry and denotes Net Asset Value.
NAV per Unit=
(Market value of the assets of the scheme- liabilities)/(Number of units outstanding)
Mutual fund schemes are of different types like
• growth-oriented scheme
• A debt-oriented scheme
• balanced scheme
• Tax Saving Schemes
• Index funds
• Specific sector
• gilt funds
Mutual Fund Schemes are floated with objectives that determine their investment pattern.
• A growth-oriented scheme would predominantly invest in equities and would seek capital appreciation as its major objective.
• A debt-oriented scheme would predominantly invest in debt instruments and would seek regular income as its major objective.
• A balanced scheme would invest partially in equity and rest in debt and would balance the objectives of growth and income.
• Tax Saving Schemes are designed to provide tax shelter to the investors.
• Index funds seek to invest in index stocks (e.g. only those stocks which are used to determine the Sensex, Nifty, etc.).
• Specific sector funds seek to invest into specified sectors like pharmaceuticals or software.
• Money market and gilt funds seek to invest into those markets alone.
Most mutual funds levy an extra charge to investors who enter into or exit from their Funds. Levies at the point of entry are termed ‘Entry Loads’ and those at the point of exit are termed ‘Exit Loads”. for example — Entry load of 1.5% of NAV.
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