…On to Operational Classification…

…On to Operational Classification…

By Liquidity

Open-end Funds are like bank accounts. Such funds enable you to invest and redeem your money any time! Units are continuously offered for sale and continuously bought back. They do not have a set number of shares. Units are bought and sold at their current net asset value disclosed on a daily basis. Open-end funds keep some portion of their assets in short-term and money market securities to provide available funds for redemptions. They offer better liquidity due to continuous repurchase.

Closed-end Funds have a set number of shares issued to the public through an initial public offering. The corpus normally does not change throughout the year. These funds have a stipulated maturity period generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. The market price of closed-end funds is determined by supply and demand and not by net-asset value (NAV), as is the case in open-end funds. Usually closed mutual funds trade at discounts to their underlying asset value. These mutual fund schemes disclose NAV generally on a weekly basis.

SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor – listing on Stock Exchanges or giving an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices.

Interval Funds combine the features of open-end and closed-end schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. So, basically it is a closed-end scheme with a peculiar feature that every year for a specified period (interval) it is made open.

By Investment Strategy

A number of mutual fund families use the word Growth Funds to describe their equity funds. But growth funds are funds that invest in companies which are growing at a rate faster than the rest of the economy and industry. The goal is to capitalize on the increase in stock prices. The risk is that many growth companies are not very big and may not be able to absorb bad news as easily as blue chip companies.

Value Funds are those mutual funds that tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. They invest in companies that the market has overlooked, and stocks that have fallen out of favour with mainstream investors, either due to changing investor preferences, a poor quarterly earnings report, or hard times in a particular industry. Value stocks are often mature companies that have stopped growing and that use their earnings to pay dividends. Thus value funds produce current income (from the dividends) as well as long-term growth (from capital appreciation once the stocks become popular again). They tend to have more conservative and less volatile returns than growth funds.

Value cum Growth Funds follow a mix of the growth and value approaches.