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Open-Ended Mutual Funds are popular among investors looking for flexible and diversifiable investment. These funds allow you to enter or exit the market at your convenience. Discover what is an open-ended fund and how it can add value to your portfolio.
What is an Open-Ended Mutual Fund?
An open-ended fund is a type of Mutual Funds that allows you to buy or sell units at any time, based on the current Net Asset Value (NAV) of the units. Unlike closed-ended funds, which have a fixed maturity period and limited entry and exit points, Open-Ended Mutual Funds provide continuous liquidity.
How do open-ended funds work?
Open-Ended Mutual Funds pool money from multiple investors to create a diversified portfolio of securities, such as stocks, bonds or a mix of both. The fund's NAV is calculated daily based on the market value of its underlying assets.
Advantages and disadvantages of open-ended funds
Advantages
- Liquidity: Open-ended funds are liquid investments, offering you quick access to your funds.
- Diversification: Open-ended funds invest in various assets, helping mitigate risk through diversification.
- Professional management: Experienced fund managers make investment decisions to optimise returns.
- Convenience: You can invest via Systematic Investment Plans (SIPs) or you can invest lumpsum amounts in one go.
Disadvantages
- Market risk: Open-Ended Mutual Funds are subject to market fluctuations, which can impact the value of investments.
- Fees: Expense ratios and management fees can affect your overall returns.
- Overtrading: Frequent buying and selling may lead to higher transaction costs, impacting returns.
- Exit load: Selling units within a specified period may attract exit loads. Exit load is a fee charged by Mutual Funds at the time of redemption of units.
Types of open-ended funds
- Equity funds: Large-cap, mid-cap, small-cap, multi-cap, flexi-cap, focused, large & mid-cap, ELSS, contra, value, & sectoral / thematic.
- Debt funds: Banking & PSUs, corporate bond, liquid, overnight, dynamic bond, floater, money market, ultra short duration, short duration, medium duration, medium to long duration, long duration, & gilt fund
- Hybrid funds: Arbitrage, balanced advantage, aggressive, conservative, equity savings, & multi asset allocation
- Index funds: Nifty 50, Sensex, sector indices.
- Fund of funds: Domestic, international.
- Solution oriented funds: Children and retirement.
How to invest in Open-Ended Mutual Funds?
- NFO period: You can invest in open-ended funds during the New Fund Offer (NFO) period. The units are allotted based on the face value.
- Post NFO period: You can buy units at the prevailing NAV. You can invest lump-sum amounts or start a Systematic Investment Plan.
How to redeem an Open-Ended Mutual Fund?
You can sell your units at any time based on the current NAV. However, if the units are redeemed within the exit load period, charges may apply.
You can purchase and redeem Mutual Fund units with ease using an Axis Bank Internet Banking or Mobile Banking Platform.
Tax on open-ended funds
| Fund Type | Date of Investment | Short term capital gains | Long term capital gains |
|---|---|---|---|
Equity Funds | Any | 20% + cess + surcharge | Up to ₹1.25 lakh a year is tax exempt. Any gains above |
Equity International Index Funds |
|
| ₹1.25 lakh are taxed at 12.5% + cess + surcharge |
Debt Funds / Debt Index Funds | Before 1st April 2023 | Taxed at investors income tax slab rate | 12.5% + cess + surcharge |
Hybrid Equity Oriented Funds (>=65% Equity) | Any | 20% + cess + surcharge | Up to ₹1.25 lakh a year is tax exempt. Any gains above ₹1.25 lakh are taxed at 12.5% + cess + surcharge |
Hybrid Debt Oriented Funds (>=65% Debt) | Before 1st April 2023 | Taxed at investors income tax slab rate | 12.5% + cess + surcharge |
Other Hybrid Funds (>35% and <65% Equity) | Any | Taxed at investors income tax slab rate | 12.5% + cess + surcharge |
Fund of Fund (FoF): Equity, Hybrid, International, Gold, Silver | Any | Taxed at investors income tax slab rate | 12.5% + cess + surcharge |
Fund of Fund (FOF)-Debt | Any | Taxed at investors income tax slab rate |
|
How to evaluate open-ended funds before investing?
- Understand what an open-ended fund is, along with its risks and rewards.
- Ensure the fund's objective matches your financial goals.
- Analyse the fund's historical performance.
- Research the fund manager's experience and track record.
Also Read: Unlocking the magic of money: How SIPs boost your savings!
Conclusion
By understanding the open-ended Mutual Fund meaning, its advantages, disadvantages and taxation aspects, you can make informed decisions and potentially unlock the power of compounding to grow your wealth over the long term.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
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