SHARETIPSINFO >> Articles Directory >>What are open ended funds?

 

Open ended funds are those mutual funds that can issue or redeem shares at any point of time. As an investor you can buy the shares of the mutual fund directly by paying the current NAV of the fund at any point of time. Unlike the closed ended funds there is no fixed number of shares that is issued by the fund. Basically in open ended funds the fund at first pools money from the investors and then invest that fund to stocks, bonds, and other mutual funds and in securities. There are open ended funds of different nature and sizes and each of these funds has different fess and charges associated with them.

How the value of open ended fund is determined?

The value of the open ended funds is denoted with the Net Asset Value or NAV of the fund. For calculating the NAV of the fund, value of all the stocks, bonds, securities and other assets of the fund are considered. Then the liability of the fund is deducted from that value to get the exact valuation of the fund. Then this valuation is divided by the number of issued shares to get the Net Asset Value of the fund. Typically in all open ended funds the NAV is calculated after the closing of the trading hours at the stock market each day. So depending on the trend of the market the NAV of a certain open ended fund can change every day. This is the reason that trading in the open ended funds can be done only after the trading hour is over for that day. As an investor you can actually see the NAV of the fund at the end of the day to decide whether to invest in the fund, redeem your shares or reinvest in that fund once again.

Advantages of open ended funds

Flexibility – The biggest advantage of the open ended mutual fund is that you can buy and sell the shares of the fund at any point of time. This is possible because in open ended mutual funds the total number of shares is not fixed and hence the fund managers issue new shares from time to time. You can also sell the shares to the fund at any point of time. This is beneficial from an investor’s point of view as you can plan to invest in the mutual funds after comparing the current NAV and past performance of the fund. As you can sell the shares any time you can also get your profit whenever you want. This benefit of the open ended mutual fund makes it flexible for the investors to invest in the open ended funds.

Active management – The open ended mutual funds are mostly actively managed by the fund managers. They constantly keep watch on the market and buy and sell stocks and securities to earn as much profit as possible for the mutual fund. This ensures that by investing in the open ended funds you are most likely to gain from the fund without taking much initiative on your part.

Liquidity – As you can buy or sell the shares of the open ended funds at any point of time you enjoy the maximum liquidity of your investment with the open ended mutual funds. In case you need cash all on a sudden you can always sell of the shares of the mutual fund that you hold. With the closed ended mutual funds you can never enjoy this type of flexibility and liquidity.

Disadvantages of open ended funds

Charges – In some of the open ended mutual funds you need to pay a charge for buying and selling shares on the current NAV. Those mutual funds that levy this type of charge on the investors are called loan funds. Of course there are so many mutual fund that o not impose the load charge on the investors.

Risk – Though the open ended funds are actively monitor and you can get the NAV of the fund on regular basis, even then there is some amount of risk associated with the open ended funds as their performance is largely dependent on the ups and downs of the stock market.

 

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