Open-end mutual fund is a type of investment fund that issues and redeems shares continuously. The Open-end fund let you buy/sell shares based on the net asset value (NAV), while closed-end funds trade like stocks on exchanges with a fixed number of shares and market-driven prices. This means that investors can buy or sell shares of the fund at any time.
To invest in open-end mutual funds, you need to go through the SIP registration process. In this article, we discuss the features, advantages, and drawbacks of an open-ended mutual fund.
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Features of Open-end Mutual Funds
- Open for buying and selling anytime: You can buy and sell units of open mutual funds at any time. There is the absence of maturity period in the open mutual funds which means you can remain invested in the schemes for as long as you want.
- Accessibility to the investors: The open mutual fund scheme gives accessibility to the investors as the investment can be done any period after the introduction of the shares as long as they want to.
- NAV-based price: The Net Asset Value of a share determines the total earnings of the share per unit. The units of the funds can be purchased or sold at the Net Asset Value (NAV).
List of open-end mutual funds in Nepal
| Name | Symbol | Fund Size | Weekly NAV |
|---|---|---|---|
| NIBL Sahabhagita Fund | NIBLSF | 586,790,630 | 10.70 |
| Siddhartha Systematic Investment Scheme | SSIS | 496,006,030 | 10.69 |
| NIC Asia Dynamic Debt Fund | NADDF | 219,819,323 | 7.97 |
| NMB Saral Bachat Fund – E | NMBSBF | 561,645,303 | 8.87 |
| NABIL Flexi Cap Fund | NFCF | 750,000,000 | 9.86 |
| Shuva Laxmi Kosh | SLK | 281,459,610 | 10.03 |
How does an open-end mutual fund work?
An open-end mutual fund issues shares as much as the investors want to buy. These shares are always open to investment. The investment can be done for as long as you want it to be. Hence the investors can purchase and redeem the units at existing NAV ( Net Assets Value).
The daily basis of the net asset value is on the value of a fund’s underlying securities and is calculated at the end of the trading day. You can predict the final value of the amount that you will gain before investing in SIP by using the SIP calculator.
Dividend Distribution History
Let’s do a head-to-head comparison of the SIP options currently available in Nepal based on their dividend history.
| Mutual Funds | FY: 76/77 | FY: 77/78 | FY: 78/79 | Total | Annual Avg. Return |
|---|---|---|---|---|---|
| NIBL Sahabhagita Fund | 8.25% | 50.0% | 7.20% | 65.45% | 21.82% |
| NIC ASIA Dynamic Debt Fund | - | 10.0% | 6% | 16.0% | 8.0% |
| Siddhartha Systematic Investment Scheme | - | - | - | - | - |
| NMB Saral Bachat Fund -E | - | - | - | - | - |
| Shubha laxmi Kosh | - | - | - | - | - |
| Nabil Flex Cap Fund | - | - | - | - | - |
| Kumari Sunaulo Lagani Yojana | - | - | - | - | - |
Over the past few years, due to the stock market’s low performance most of the new mutual funds haven’t been able to give dividends.
Advantages of open-end mutual funds
- High Liquidity: Liquidity refers to any financial instrument or asset that represents ease where one can convert it into cash negatively pricing. In open mutual funds, there will be maximum liquidity since the investors can redeem units. You can buy and sell the units anytime.
- Availability of SIP: Open-ended mutual funds allow one to invest either a lump sum amount into the sum or optional for a systematic investment plan (SIP). This is particularly beneficiary for salaried investors and people without an investible corpus on hand.
- Track record: The open-ended mutual fund shows every record or transaction of the share and its performance. This record of the shares and investment can help to track the record of past performance of the shares.
- Multiple investment options: Open-ended mutual funds are very flexible in terms of shares, investments, and divided units of percentage. In an open mutual fund, there are a large number of shares. Investors can have a choice on which share to choose and they can withdraw easily if they want to.
Drawbacks of open-end mutual fund
Open-end mutual funds are very satisfactory to the public as they can invest in the shares for as long as they want. However, the market can behave in a dynamic manner which affects the NAV of the mutual fund. Hence, the NAV of an open-end mutual fund can fluctuate according to market fluctuation.
Open-ended mutual funds are prior to cash flow risks. If many investors are said to redeem their shares simultaneously, then the fund manager cannot regain the funds for the investors. Selling in the units of the market will be problematic. This is known as cash flow risk. Also, this kind of mutual fund is prone to significant investments and withdrawals.
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FAQs
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Conclusion
An open-end mutual fund is the most popular fund among types of mutual funds. The merits that it holds make it favorable for investors to invest. Here you have learned about the pros and cons of open mutual funds. So, you should invest in an open-ended mutual fund according to your investment needs and capability. You can also further consult with financial advisors who can lead you in the Financial markets.