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What are open ended Mutual Funds?

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You might already know that mutual funds can make a great investment vehicle and help you on your financial planning journey. However, simply knowing this is not sufficient. There are several mutual fund types, and knowing about them can help you make the right investment decisions. Now, before we go any further, you must understand that the different mutual fund types can be based on the different instruments in which they invest, their structure, their investment time horizon, the strategies they follow, etc. Based on their structure, there can be three main mutual fund types. These include open ended mutual funds, close ended mutual funds, and interval funds.

In this article we are going to be talking about the most common type, i.e., open ended mutual funds.

Open ended mutual funds are basically mutual funds that always remain open. This means that you can buy and sell units from an open ended mutual fund any time you want. Open ended mutual funds do not have a lock-in period or a fixed end date. Just one thing to note is that even though Equity Linked Savings Schemes (ELSS) are categorised as open ended mutual funds, they have a lock-in period of 3 years from the date of investment.

The benefits of open ended mutual funds

There are multiple benefits of open ended mutual funds. Some of these include:

  • Liquidity:Open ended mutual funds are highly liquid as you can buy and sell them any time.
  • Flexible investment mechanism:Investment in an open ended mutual can be done either in a lumpsum amount or through the Systematic Investment Plan (SIP) If you choose to invest via the SIP route then you can invest a fixed amount of money in a mutual fund scheme of your choice and as per time intervals that suit you best. This is in contrast to a closed ended mutual fund in which you can invest only at the time of the New Fund Offering (NFO) and cannot invest via the SIP route.
  • Investment amount:Since you can start investing in an open ended mutual fund via the SIP route, you can begin this journey with as low as Rs. 500 and keep increasing it as per your convenience and growth in income.
  • Track record:The performance track record of the existing open ended mutual funds is easily available. Thus, as an investor, you can easily review and compare the performance of multiple open ended mutual funds in order to make an informed investment decision.
  • Additional benefits:Since you can invest in open ended mutual funds via the SIP route, you can easily reap the benefits of SIPs which include rupee cost averaging, compounding, and investment discipline. Further, even as you continue to do your SIP, you can choose to invest a larger lumpsum amount when the equity market falls substantially in order to take advantage of the lower prices.

Who should invest in open ended mutual funds?

Every investment is good for you, right up until the moment that it isn’t. What this essentially means is that the investments that you make need to fit your unique risk profile and investment time period and should be able to generate your required returns. While open ended mutual funds are well-suited for every kind of investor, they are especially good for you if you are looking for liquidity and want to invest in instruments that allow you easy entry and exit.

Now that you know the basics of an open ended mutual fund, you are better positioned to make an informed investment decision. However, while accumulating knowledge is great, you should also consider engaging with a financial consultant who can guide you on your financial journey.

An investor education initiative by Edelweiss Mutual Fund

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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY

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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.