Open ended & Closed ended Mutual Funds - Types of Mutual Funds, Investing in Stock Markets Video Lecture | Investing in Stock Markets - B Com

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welcome to yet new investment Academy
there are various ways in which funds
are classified for example based on
underlying acids they classified as
equity debt hybrid etc based on
investment strategy they're classified
as actively managed or passively managed
likewise funds are also classified based
on their structure as open ended or
closed ended funds and in this video
we're going to compare open ended and
closed ended funds open-ended fund a
perpetual kind of funds that is once the
fund is launched it continues to exist
without an end date
whereas closed ended funds comes with a
fixed duration they exist for three
years five years seven years etc they
usually come with a theme of investment
open-ended funds can be bought any time
even after the closure of the new fund
offer
whereas close ended funds can be bought
only during the nfo that is a new fund
offer after this offer is over you
cannot invest into closed ended funds
but in case of open-ended funds is the
fund manager thinks he cannot handle
asset under management beyond a certain
threshold to find housetops accepting
any new investments under that fund in
case of open-ended funds as continuous
buying is possible continuous selling of
unit is also possible which in turn
affects your asset under management and
so the asset under management of
open-ended funds goes up or down due to
continuous investment and redemptions
and also due to change in the value of
underlying securities in case of closed
ended funds any new investment is not
possible after the closure of the nfo
and redemption is not a possibility in
case of closed ended funds unless the
duration of the fund is over and so the
total number of outstanding units of a
closed-ended fund always remains same so
the asset under management goes up or
down we only do two change in the value
of underlying securities
not due to the continuous buying or
selling of the fund unit in case of
closed ended funds of fixed asset under
management offers great amount of
flexibility to the fund manager they can
take tough long-term calls to satisfy
the investment objective of the fund in
a better manner they can invest into
undervalued stocks which have lower
liquidity and can follow a buy-and-hold
approach in that comparison a variable
AUM due to continuous investment and
redemption remains a concern for the
fund manager of an open-ended fund and
this is also the precise reason why
open-ended funds are more investor
friendly as they offer any time
investment and anytime redemption to
cater the redemption requests in case of
open-ended funds the final managers have
to maintain a certain cash reserve this
is not a need in case of closed ended
funds as a number of units always remain
constant as redemption is not a
possibility before the end of duration
in case of closed ended funds to offer
some amount of liquidity to its
investors these funds get listed on the
stock exchange and there they can be
traded like other stocks but this is not
as easy as it sounds the buying and
selling of such units is purely based
upon demand and supply equation which is
influenced by funds performance and
other market conditions and so the fund
units may trade at a premium or at a
discount on the exchange
whereas units of open-ended funds can be
bought or sold at the prevailing nav and
thus buying and selling can be done only
with the fund house whereas on the other
hand closed-ended funds can be bought in
the NA for period from the fund house
these can be redeemed only after the
completion of the duration of the fund
and meanwhile can be traded on the
exchange subject to demand and spline as
any time buying and selling is possible
in case of open-ended funds
you yourself have to keep your emotions
at bay to stay invested through the ups
and downs of the market cycle whereas in
case of closed-ended funds the lock-in
period helps you stay invested
systematic investment transfer and
withdrawal is a possibility in case of
open-ended funds but these are not
possible in case of closed ended funds
lump sum investment is required which
may not be possible for everyone in case
of open-ended funds to discourage
investors from early Redemption and exit
load ranging from zero to two percent is
levied if they pull off via funds within
a stipulated duration whereas in case of
closed ended funds redemption is not a
possibility
distributors may influence the investors
to invest into closed ended funds due to
the higher Commission's offered a
maximum of 2.5 percent of assets under
management can be charged as expense
ratio by the fund so if there is a fund
with an expense ratio of 2.5% and a
duration of 5 years it can collect 12.5%
of the asset under management as expense
ratio through those five years now this
becomes a guaranteed income for the fund
and so it can offer higher Commission's
to its distributor though the commission
that can be paid up front to the
distributors is capped at 1% of the
assets brought in by the distributor but
a higher Commission can be passed on
through other incentives comparatively
open-ended funds cannot pay such high
commissions to its distributors due to
relaxed rules by say B for closed-ended
funds these funds can borrow additional
money and can invest it along with the
asset under management to produce better
returns now this could be risky or
rewarding for the investors whereas in
case of open-ended funds borrowing is
not an option friends in this video
we've compared open-ended funds with
closed-ended funds on all possible
pattern
leaders hope the video has been
informational thanks for watching this
one watch this space for more such
topics until then happy investing if you
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