Mutual fund industry is continuously evolving in India. Generally mutual funds are divided into open end and closed end mutual funds. Based on the risk factor that investors are willing to take these open end and closed end mutual funds are further divided.
In this article we have listed the type of mutual funds and the difference between open end and closed end mutual funds.
Before getting into the type of mutual fund you should first know what is mutual fund and the difference between open end and closed end mutual fund.
Difference between Open End and Closed End Mutual Fund
Open end mutual fund means the fund that does not have any limit on number of shares to issue and sell. Its open though out the year and any investor interested in it can buy and sell at a price linked to the fund’s net asset value. These open ended mutual funds are not listed in stock exchange.
Closed end mutual fund is the opposite to open end mutual fund. In closed end mutual fund, the number of shares that is available for sale to the public is previously decided or fixed. After reaching that number, new investors are not allowed into the fund.
If a new investor wants to buy shares of a closed end mutual fund then someone else has to sell it first. Closed end mutual funds are listed in stock exchange to facilitate the buying and selling process among investors.
Types of Mutual Fund
These open end and closed end mutual funds can be further divided into different categories based on asset class.
Equity funds are also called stock funds. Money collected is mostly invested in buying stocks of those companies who has potential of large capital gain. Money invested in stock or equity funds are exposed to the same risk that an individual stock carries in a stock market. You can expect capital appreciation in long run if you keep investing for a long term period.
Debt funds are also known as Income fund. A major portion of the fund is invested in debentures, government securities and other debt instruments that carry low risk. If you are looking for steady income then we suggest you to invest into these funds.
Money Market Funds
Money market funds or liquid funds are invested into short term debt instruments. If you have surplus money then you can invest into these funds to get good return.
Mutual funds can also be classifies based on the market capitalization of the company where investor’s money is invested. Generally based on the market standard these are divided into large cap (invested in companies having bigger market share), mid cap (invested in companies having mid size market) and small cap (invested in companies that has small market).
One can also categorize mutual funds based on objectives like growth fund (invested in companies that are expected to grow at a rate higher than the normal rate), value stock fund (dividend paid companies) and blend stock fund (mixture of growth and value stock fund).