What is an Open-Ended Mutual Fund & How to Invest in it?

Mutual Funds are a popular investment choice in India, especially among individuals looking to build wealth over time. Their appeal lies in benefits such as diversification, potential for long-term growth and ease of entry and exit. Among the various types of Mutual Funds available, Open-ended Mutual Funds are the most widely preferred by investors.

In this blog post, we’ll explain what Open-ended Mutual Funds are, how they work, their advantages & risks and how you can invest in them effectively.

What Are Open-ended Mutual Funds?

Open-ended Mutual Funds are investment schemes which allow you to buy and sell units at any time. These Funds do not have a maturity date- you can enter and exit these Funds whenever you want to.  Unlike Close-ended Funds which lock your money for a fixed time, Open-ended Funds offer the flexibility of investing and withdrawing money anytime. This makes them ideal for long-term as well as short-term goals.

How Do Open-ended Mutual Funds Work?

When a Mutual Fund company (called an Asset Management Company (AMC)) launches a new Fund, it starts with a New Fund Offer (NFO). During the NFO, investors can invest in the Fund at a base price. Once the NFO is over, the Fund becomes ‘open-ended’. After that, units are bought and sold based on the daily Net Asset Value (NAV). Professional Fund Managers handle the money invested into the Fund, investing it in stocks, bonds or a mix depending on the Fund’s objective.

You can invest through a lump sum, which is a one-time investment or an SIP (Systematic Investment Plan), where you invest in small and regular monthly instalments. You can redeem (sell) your units anytime and the amount you receive will be based on the NAV on the day of redemption.

Key Benefits of Open-ended Mutual Funds

Now that you know what an Open-ended Mutual Fund is, let’s understand its key benefits:

1. Liquidity

You can invest or withdraw anytime, giving you full control over your money. This is very helpful during emergencies.

2. Professional Fund Management

Experienced Fund Managers manage your money, do research and make investment decisions.

3. Flexible Investment Options

You can invest via SIPs or in a lump sum, as per your financial goals and cash flow.

4. Diversification

Your money is spread across various assets like stocks or bonds and across sectors. This reduces the risk compared to investing in a single company or sector.

5. Transparency

You can track the Fund's performance, NAV, holdings and more, through monthly reports and online dashboards.

Risks of Open-ended Mutual Funds

1. Returns are not guaranteed

The value of your investment might go up or down depending on market conditions.

2. Exit Load

Some Funds charge an exit load if you redeem your investment within a certain period, e.g., 1 year.

3. Fund Volatility

Frequent buying and selling by investors can affect the Fund’s stability.

How is the NAV of a Fund Calculated?

NAV or Net Asset Value is the price of one unit of a Mutual Fund. It is calculated as:

NAV = (Total Assets - Expenses) / Number of Units

The NAV changes daily depending on how the underlying investments perform. If the market goes up, NAV rises and vice versa.

How to Invest in Open-ended Mutual Funds?

1. Choose a Goal

Decide the reason for which you are investing, such as retirement, buying a home, child’s marriage or higher education or wealth creation. Choose a Fund whose objective matches your goal.

2. Select the Right Fund

Compare Mutual Funds based on past returns, risk level, Fund Manager’s experience & expertise and ratings. You can choose from Equity, Debt or Hybrid Funds.

3. KYC Compliance

Complete your KYC. You will need your PAN Card, Aadhaar Card and a photo.

4. Start Investing

Visit the Mutual Fund company’s website or use ICICI Bank’s Internet Banking or iMobile app. Choose between SIP or lumpsum and enter your investment amount.

5. Monitor Regularly

Check the Fund’s performance every few months. Make changes if needed, based on your financial goals.

Conclusion

Open-ended Mutual Funds are a smart choice if you want a flexible, long-term investment option. They are easy to begin investing in, are professionally managed and offer good returns if you stay invested for a long period. Like any investment, they come with risks, but if you choose your Mutual Fund based on your goals and invest wisely, Open-ended Mutual Funds can help you build wealth over time.