The Difference Between ETF and Mutual Fund Explained

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As youngsters we always think about investing somewhere or growing our savings. The question is, “Where should we do this?” Invest in mutual funds. A mutual fund sectors size, asset class, and flexibility are generally considered when classifying it. The two types of funds are open-ended funds and close-ended funds.

Open-ended funds are available to investors continuously, whereas close-ended funds are available only for a limited amount of time. Let us understand the difference between these two, availability is the first. It is only possible to purchase close-ended funds during new fund offers or from the stock exchange after they have been listed. Open-ended funds can still be subscribed to after the nfo closes and units can be redeemed whenever they want. Close-ended funds however liquidate when they reach maturity and the money goes to the subscribers based on their holdings. Only a few open-ended funds can be converted into closed-ended funds.

The second one is a fixed corpus. Contrary to open-ended funds, closed-ended funds have a fixed corpus and a fixed term, usually around 3-5 years. Close-ended funds require you to block those funds for a while, open-ended funds however let you buy and sell whenever you want.

So, guys there are two more differences that will give you accurate information on open and close-ended funds, liquidity and listing. Liquidity for open-ended funds is provided by the fund itself while liquidity for close-ended funds is provided by the market. Conversely open-ended funds aren't listed on the stock exchange and handle all transactions themselves. Funds listed on reputable stock exchanges provide liquidity to investors.

Looking at the fourth aspect, it's the unit price. There's no limit how much you can trade on open-ended mutual funds at their current nav. NAV stands for net asset value which is just another name for unit price. Due to the fact that close-ended schemes trade on stock exchanges their prices may differ from their nav. In addition to this there are also some technical differences between these two so you have to make a wise choice when you do need to make investments and think about your future business establishment.