A Guide to Open Ended Funds

A fund that is not restricted to the number of shares issued especially during the conditions when the demand is high or low is known as an Open Ended Fund. Also, it is quite flexible since an investor is free to sell it back; thus, a majority of funds are known to be open-ended and are extremely convenient in terms of being an investment vehicle. If the investment manager realizes that the total assets have become too large to manage and execute, he/she will open the investment for newer investors rather than continuing with the existing ones.

In the meanwhile, a close-ended fund is one of the mutual funds in India that is fixed and only sells a particular number of units and the existing investors cannot exit the term until the scheme ends. The price is also affected by the demand and supply of fund units. Close-ended funds offer to repurchase the units which results in an avenue for more liquidity.

Although close-ended funds are free from worries related to the fund size and regular redemption, open ended funds are still better to deal with and have performed better than their counterpart. The average return of a close-ended fund is about 7.38, 6.28 and 2.83 percent whereas open-ended funds have generated about 6.54, 8.86 and 3.36 percent of returns (same time period, i.e., a year).

The most preferred fund: Open-ended

A few examples would help you identify the kind of fund you would invest in. On the 22^nd of March, HSBC Unique Opportunities Fund, a close-ended fund converted into an open-ended fund due to the fact that it was unable to return the principal amount against the greater returns provided by an open-ended fund.

Performance issues

Open-ended funds have always outperformed its counterpart and peers especially during the market fall in the year 2008 all the way up to 2009.

NFO

The main purpose of launching close-ended fund schemes were to maximize investment and receive gains in a short duration after which one could make a hasty exit as soon as the scheme reopens for subscription. This was due to the fact that long term investors had to pay heavy duty; therefore, open ended funds were a way to eradicate the high costs.

Premature withdrawals

One of the sole reasons for the suffering and near demise of close-ended funds was the fact that there arose monthly redemption's and premature withdrawals were penalized which resulted in withdrawals from the investors. If there is a rush for redemption, then mutual funds managers need to sell liquid stocks and the market only constitute of illiquid stocks, which require some time recover. Due to the premature redemption's, close-ended fund suffer because new money is not allowed to enter the fund.

Also, a lack of monitoring affects close-ended funds, turning open-ended funds into a more desirable option for investors.  Also, there is nothing unique to offer from a close-ended fund’s point of view, therefore it is advisable to choose an open-ended fund.

Top 10 Equity Mutual Fund in India for Ambitious Investor

Mutual funds are often considered relatively safe investment option in comparison to equities. This statement is true as direct investment in stocks involves huge amount of risk. Furthermore, you need substantial amount of working, proven knowledge to convert market fluctuations into monetary equivalents.
To mitigate the equity risk and to tap favorable returns from market fluctuations, Fund managers have launched several schemes. Amongst the various schemes they formulate, equity funds are known to be the top-gainers.

Here are the top 10 equity mutual funds in India that promise double-digit, positive returns to the investors for the year 2014.

1> Birla Sun Life Long Term Advantage Fund
This growth fund is offering a whopping double-digit return of 63.3% for 1 year of investment. Managed by Mahesh Pati, the fund has consistently performed well over the past few years. The standard benchmark for this scheme is S&P BSE 200.

2> Axis Long Term Equity Fund
With an annual return rate of 78.1%, this scheme from the Axis fund house continues to be one of the consistent top-performers. Benchmarked against S&P BSE 200, this diversified scheme invests predominantly in Banking, automotive, and technology sector.

3> BNP Paribas Equity Fund
With an unmatched growth rate of 51.4% for a year, this CNX Nifty benchmarked growth fund continues to lure investors, even today. The portfolio is diversified and returns are equated.

4> Quantum Long-term Equity Fund
Marked against the S&P BSE SENSEX, this growth fund is the best call for long term growth. With portfolio packed with technology and oil/chemical giants, this fund is expected to promise good returns in future.

5> DSP BlackRock Equity Fund
This diversified portfolio fund is a dividend based scheme ideal for regular investors. Managed by Apoorva Shah, this scheme promises substantial returns of 46.3% for a single year.

6> Kotak NIFTY ETF
This CNX NIFT benchmarked fund is offering an average annual return rate of 43.7% consistently. Managed by young and able fund manager Deepak Gupta, this scheme has managed to offer positive returns even during troubled times.

7> Franklin India Smaller Companies Fund
Offering annual returns of 99.7%, this scheme is the cynosure of Mid-Cap top performers. Benchmarked against CNX Midcap, this fund continues to attract moderate risk-taking investors all over the country.

8> Reliance Small Cap
The multifaceted Reliance fund house has managed to show some magic with equities by launching this fund. Grabbing a surprising return rate of 124.2% for a year, S&P BSE SMALL CAP benchmarked fund has attracted several risk-taking investors.

9> Franklin India High Growth Fund
With a stable return rate of 76.1% for a year, this CNX 500 benchmarked has grabbed the attention of several investors lately. With a strong, diversified portfolio, the risk associated with this scheme is relatively moderate.

10> ICICI Prudential and other Services Fund
A strong market player from the ICICI fund house, this service-themed fund offers a double digit return of 61.2% for a year. Themed around the service industry, this fund shows consistency in returns, even during troubled times.