Types of Mutual Fund Schemes
Types of Mutual Fund Schemes
Mutual Fund schemes can be classified into different categories and subcategories based on their investment objectives or their maturity periods.
Mutual Fund schemes can be classified into three categories based on their maturity periods. Open-ended funds : An open-ended fund or scheme is one that is available for subscriptions and redemptions on a continuous basis. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis.
Close-ended funds : A close-ended fund or scheme has a stipulated maturity period which can range from a few months to a few years, e.g. 6 months, 5 years or 7 years. i.e. fund is open for subscription only during a specified period at the time of launch of the scheme which is the New Fund Offer (NFO).
Investors can invest in the scheme at the time of the NFO and thereafter, they can buy or sell the units of the scheme on the stock exchanges where the units have to be mandatorily listed.
Interval funds : These schemes are a cross between an open-ended and a close-ended structure. These schemes are open for both purchase and redemption during pre-specified intervals (viz. monthly, quarterly, annually etc.) at the prevailing NAV based prices. Interval funds are very similar to close-ended funds, but differ on the following points:-
- They are not required to be listed on the stock exchanges, as they have an in-built redemption window.
- They can make fresh issue of units during the specified interval period, at the prevailing NAV based prices.
- Maturity period is not defined.
Exchange Traded Funds : Exchange Traded Funds or ETFs are essentially Index Funds that are listed and traded on exchanges like stocks. They enable investors to gain broad exposure to indices on stock markets in India and in some cases in other countries as well. These indices, if based on certain specific sectors/themes would thus provide exposure to such sectors with relative ease, on a real-time basis and at a lower cost than many other forms of investing. For example there are ETFs that track S&P CNX Nifty, BSE Sensex etc. Gold ETF are mutual fund schemes where the underlying investment is in physical gold.
Fund of Funds : Fund of Funds (FoF) as the name suggests are schemes which invest in other mutual fund schemes. The concept is popular in markets where there are number of mutual fund offerings and choosing a suitable scheme according to one’s objective is tough. Just as a mutual fund scheme invests in a portfolio of securities such as equity, debt etc.,the underlying investments for a FoF is the units of other mutual fund scheme(s), either from the same fund family or from other fund houses or from funds domiciled outside the home country (known as overseas feeder fund or fund of funds explained in detail under section types of equity funds).