Closed Ended Funds

In close-ended funds, the number of units issued is fixed. After the initial issue/ IPO, the units are traded on the exchange like any other stock. Investors can buy into these funds in the IPO after which such schemes do not issue new units except in case of bonus issue.

Unlike open ended funds the buy/sell transactions happen between the investors after the initial issue. Close-ended schemes have fixed maturity periods. The market price of the units varies due to demand and supply factors, investors’ expectations and other market factors as well as the changing values of the securities in the fund’s holdings.

Share/unit price may not be equal to the NAV since the price also depends on the demand and supply. Sometimes market price of a unit goes below NAV simply because of lack of liquidity. Read more

August 29, 2009 | Filed Under Mutual Funds | Leave a Comment

Open Ended Mutual Funds

In open ended funds the units are sold continuously during the life of a scheme. Similarly the unit holders are free to redeem their units at prevailing NAV at any time. Hence number of units/unit holders fluctuates everyday.

Units in the open-ended schemes do not have a fixed maturity period. These schemes have variable capitalization. These funds are not listed on the exchange and investors need to directly approach the company or their agents/dealers for any transaction. An open-ended fund allows an investor to enter the fund at any time, or to invest at regular intervals. The issuing company directly takes the responsibility of providing liquidity to the investors when they want to liquidate their investments. Read more

August 29, 2009 | Filed Under Mutual Funds | Leave a Comment

Classification of Mutual Funds

Mutual funds can be classified below

Classification based on structure and management style
Open Ended Funds
Closed Ended Funds
Unit Trusts

Classification based on type of investment assets
Equity Funds
Bond Funds
Gilt Funds
Money Market Funds
Asset Allocation Funds
Sector Funds
Index Funds
Commodity Funds Read more

August 22, 2009 | Filed Under Mutual Funds | Leave a Comment

Mutual Fund Structure in India

The above diagram gives an idea on the structure of an Indian mutual fund.

Sponsor: Sponsor is basically a promoter of the fund. For example Bank of Baroda, Punjab National Bank, State Bank of India and Life Insurance Corporation of India (LIC) are the sponsors of UTI Mutual Funds. Housing Development Finance Corporation Limited (HDFC) and Standard Life Investments Limited are the sponsors of HDFC mutual funds. The fund sponsor raises money from public, who become fund shareholders. The pooled money is invested in the securities. Sponsor appoints trustees.

Trustees: Two third of the trustees are independent professionals who own the fund and supervises the activities of the AMC. It has the authority to sack AMC employees for non-adherence to the rules of the regulator. It safeguards the interests of the investors. They are legally appointed i.e. approved by SEBI. Read more

August 22, 2009 | Filed Under Mutual Funds | Leave a Comment

What is Foreign Exchange or Forex

Foreign exchange is abbreviated as Forex or FX. It’s basically currency trading. Foreign exchange can be defined as purchase or sale of one currency against sale or purchase of another currency at an agreed price and date. Exchange rate in a way shows the purchasing power of one currency in another currency. After the globalisation Foreign Exchange has assumed a lot of importance.

The foreign exchange (FX) market is a multibillion-dollar market for monetary transactions associated with international trade and finance. In this market, people who need the currency of another country can obtain it in exchange for the currency they have. The foreign exchange market is the largest in terms of the daily transaction volumes and is the most liquid market in the world. Trading in foreign exchange happens in markets operating worldwide and 24 hours a day. FX market is not a physical market and transactions are done through internet enabled online system or over phone. The profit margins in Foreign Exchange is very less compared to other markets. But since the volume of transactions is heavy profits are generally high. Read more

August 16, 2009 | Filed Under forex | Leave a Comment