Mutual funds have become a preferred choice of investment for ordinary people. The reason for this phenomenon is twofold, it provides for a relatively safe avenue of investment coupled with the tax benefits of the central government. For ordinary people, all mutual funds are one and the same except for their fancy little names. The truth cannot be more different.
Not only are there a wide-range of mutual funds, but also the benefits accrued from each one of them differ significantly.
The most basic difference is the schemes which govern these mutual funds. There are generally two types of schemes-open ended and closed ended. The most fundamental difference between them is that the former do not have any rigid maturity period while the latter do not enjoy the flexibility of an open ended scheme. Hence the key or the USP of an open ended scheme is that it offers discretionary liquidity. It must not be implied that one of these schemes are better than the other. For the close ended schemes, the added benefit is that it enjoys the favor of the finance ministry in the form of tax benefits. Mutual funds falling under the gambit of the closed ended schemes can be traded on the stock exchange. In addition to it, the investors can also sell their units to the mutual funds within a limited liquidity window.
In addition to the above mentioned schemes, there is a new form of mutual funds which is gaining popularity with the investors. It is called interval schemes. The unique feature of this scheme is that it encompasses the benefits of both the open-ended as well as closed-ended schemes. Even the units of this kind of schemes can be traded on the stock market.
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