Close
Ended or Open Ended Mutual Fund which one is good?
Often we invest in mutual fund after looking past performance or on any
friend’s suggestion. You do not care whether that particular scheme is suitable
or not for you. So there is always confusion which scheme is good and which
scheme is bad. Every mutual fund scheme are not made for all. You have to
choose a good mutual fund according to your need, future goal, investment time
horizon and risk profile. There is possibility that one scheme is good for Mr ‘A’
and the same scheme is not good for you. Be careful before investment in any
investment instrument.
In mutual fund, you can invest between 1 day to any period based on your
need. There are basically two type of mutual fund one is open ended scheme and
other is close ended scheme. In open ended scheme you can enter in the scheme
and exit from the scheme at your chosen time. Close ended schemes come with
some defined lock-in period. You cannot exit from these schemes before lock-in
period.
The lock-in period varies from few months to 4 - 5 years according to
investment objective of particular scheme. Some investment instrument need time
to be able to generate good returns. Closed-ended funds provide proper
timeframe to fund manager and investors to cultivate this opportunity.
At current scene, when whole mutual fund industry face redemption
pressure from the investor due to turbulent market condition. Since January, Rs
10,694 crore has moved out from equity schemes as outflows. Fund
houses come with more close ended schemes. ICICI Prudential, Union KBC, Reliance
MF and Axis MF have launched closed-ended equity schemes since last few months.
A lock-in product would help fund houses deliver better returns over the longer
run, as many mid- and small-cap stocks are trading at cheaper valuations now.
In a closed-end product, investors would remain for the entire duration,
whether three or five years, whereas in an open-ended scheme, the investor can
move to another one at any point. From investor point of view, the can also the
take advantage stay invested in schemes as stock valuation is very cheap in
current market.
For more detail about
any other query related investment, you can contact me through my email.
Warm regards,
Arvind Trivedi
Certified
Financial Planner
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