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Types of Mutual Funds (By Structure)In an open-end fund, the units of a mutual fund are bought and sold by the fund company itself. The price at which you buy this fund is usually higher than the price at which you can sell the fund to the fund company. In this mutual fund, there are no restrictions on the amount of shares the fund can or will issue. Depending upon the demand, the fund continues to issue shares no matter how many investors there are. In this case, the fund companies also give option to the investors to buy back their shares when investors wish to sell. Mostly mutual funds are open-end funds and they are more conservative and provide consistent returns. Generally, Open-end funds are managed actively and are priced according to their net asset value.
Closed ended fund Unlike an open-end fund, where the buying and selling of funds are conducted by the fund company itself, the units of close-end funds are traded on a stock exchange. The market price of the shares in closed ended fund is determined by supply and demand and not by net-asset value (NAV).
Load This is the total price of buying a unit of a mutual fund. It is actually a kind of fee or commission charged to an investor when buying or redeeming shares in a mutual fund. Mostly funds sell units at a premium to its underlying NAV, and purchase them at NAV. When the fund company charges a load while selling its units, it is called entry load. When it charges a load at the time of buying the units back from an investor, it is called exit load. Most mutual funds today carry some load, since there is always a cost incurred in the operation of the fund and as a result of numerous shareholder transactions. Sometimes, though this load thing acts as a burden for investors and is very effective in discouraging them from trading the mutual fund in short-term or using it for purposes other than investment. It is also a source of income for the Asset Management Company which operates the mutual fund. > |
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