Basic Structures of Mutual Funds

Basic Structures of Mutual Funds

What are the three main structures of mutual funds?

The three main structures of mutual funds are open-ended funds, closed-ended funds, and unit investment trusts.

Open-ended funds:

These schemes allow investors to buy and sell shares at the net asset value (NAV) or NAV-based prices continuously. Investors can enter and exit the scheme at their convenience. With no lock period, they offer high liquidity and “can be purchased from, and redeemed by the fund or through a broker for the fund” (SEC & United States- Securities and Exchange Commission, 2010).

Closed-end funds:

These funds have a fixed corpus and a predetermined maturity period. Investors can only buy “a fixed number of shares at one time (in an initial public offering). That later trade on a secondary market” (SEC & United States- Securities and Exchange Commission, 2010).

The fund offers no interaction with investors till redemption except for paying dividends or bonuses. However, in exceptional cases, some close-ended mutual funds may announce buyback schemes.

Unit investment trusts (UITs):

These funds offer a one-time public offering of only a specific, fixed number of redeemable securities which are the units. They have a limited life span and will terminate and dissolve on a date specified when the UIT is created.

Check the following sources to know more about the basic Structures of Mutual Funds

1. Sec, & united states – securities and exchange commission. (2010). Mutual Funds A Guide for Investors Information is an investor’s best tool. (URL)

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