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Funds are usually open or closed-ended.

In an open-ended fund, the units are issued and redeemed by the fund, at any time, at the NAV prevalent at the time of issue / redemption. The fund discloses the NAV on a daily basis to facilitate issue and redemption of units.

Unlike open-ended funds, closed-ended funds sell units only at the outset and do not redeem or sell units once they are issued. The investors can sell or purchase units to (or from) other investors and to facilitate such transactions, such units are traded on stock exchanges. Price of closed ended schemes are determined based on demand and supply for the units at the stock exchange and can be more or less than the NAV of the units.

We now examine the different kind of funds on the basis of their investments. Mutual fund investments represented as units in a single portfolio, in real life, fund houses float various schemes from time-to-time, each a constituting a portfolio where inputs translate into units. These schemes are differentiated by their charter which mandates their investment into asset classes. Beyond the type of instruments they invest in, fund houses are also differentiated in terms of their investment styles. The approaches to equity investing could be diversified or undiversified, growth, income, sector rotators, value, or market-timing based.

Each mutual fund scheme has a particular investment policy and the fund manager has to ensure that the investment policy is not breached. The policy is laid right at the outset when the fund is launched and is specified in the prospectus, the ‘Offer Document’ of the scheme. The investment policy determines the instruments in which the money from a specific scheme will be primarily invested. Based on these securities, mutual funds can be broadly classified into equity funds (growth funds and income funds), bond funds, money market funds, index funds, etc. Generally, fund houses have dozens of schemes floating in the market at any given time, with separate investment policies for each scheme.

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