Mutual Funds ki Baat with S Naren, ED and CIO, ICICI Prudential AMC

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Many people often feel confused when it comes to choosing the best mutual fund. To gain clarity on this topic, watch this exclusive conversation with industry experts

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.

What's better than doubling or tripling your money, it's quadrupling it. The rule of 144 gives you an estimate of how long it will take for your money to grow by four times. The rule of 144 is similar to the rule of 72 and 114. Simply divide 144 by the assumed return rate to get an estimated number of years for your money to quadruple. So, if your investment account earns 11% assumed return rate it can take 13.09 years for your money to quadruple.

Are ETFs and Mutual Funds really two different things? Let’s find out.

What are Mutual Funds?

Mutual Funds are professionally managed investment schemes wherein the fund manager pools together the money from several investors to invest in a variety of securities as per the predefined objectives. SEBI has classified mutual funds into different types, one of which is an ETF.

What are ETFs?

Exchange Traded Funds or ETFS are mutual funds that replicate a specific benchmark index. For instance, an ETF can mirror BSE Sensex 30 index. ETFs are traded on the stock exchange where you can buy and sell ETF units just like a share.

Mutual Funds vs ETFs

How to buy ETFs and Mutual Funds?

Whether you decide to invest in Mutual Funds or ETFs, you will need a demat and trading account to buy and store your securities. Consider opening one with a reputed broker like ICICI Direct.

Start small

In some funds, we can start with Rs. 100 per month.

Invest with discipline

Regular monthly investments are better than ad-hoc investing.

Pay automatically

SIPs are convenient. You can have yours auto-debited!

Lower your risk

Lump sum investing exposes you to volatility risk.

Reduce cost ownership

SIPs reduce cost of ownership in volatile markets over the long-term.

Lumpsum Investment Systematic Investment Plan You invest a large sum in one go. You invest small amounts periodically, like every month. Ideal when prices are not volatile and are likely to steadily rise. Best in most conditions, but particularly when markets are volatile. You must time the market to get the best returns. You don’t need to time the market; just keep investing regularly. Good for seasoned investors, who have a higher risk appetite. Good for most investors, who prefer lower risk. Good for investments in liquid funds, which provide stable returns. Great for investments in equity mutual funds, where returns are volatile.