A mutual fund scheme can be classified into an open-ended fund or close-ended fund depending on its maturity period. A scheme can also be classified as a Growth Fund, Income Fund, or Balanced Fund considering its investment objective.
An open-ended scheme/plan is one that is available for subscription and repurchase on a continuous basis. These schemes do not have fixed maturity periods. Investors can conveniently buy and sell units at NAV related prices which are declared on a daily basis. The mutual fund buys and sells units regularly. The key feature of the open-ended schemes is liquidity.
A close-ended scheme/plan has a stipulated maturity period, e.g.3-10 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public offer and thereafter they can buy or sell the units of the scheme on the stock exchanges in case the units are listed in a recognized stock exchange. In order to provide an exit route to the investors,some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI regulations stipulate that at least one of the two exit routes be provided to the investor, i.e., either repurchase facility or through listing on stock exchanges. These mutual fund schemes disclose NAV generally on a week basis.
Growth Scheme/Equity Oriented Scheme:
The aim of growth funds is to provide capital appreciation over medium-to-long-term period.Such schemes normally invest a major part of their corpus inequities.Such funds have comparatively higher risks. These schemes provide different options to the investors like dividend option,capital appreciation etc. and the investors may choose an option depending on their preferences.
Income Scheme/Debt Oriented Scheme:
The aim of income funds is to provide regular and steady income to investors.Such schemes generally invest in fixed income securities such as bonds,corporate debentures,government securities and money market instruments.Such funds are less risky compared to equity schemes.These funds are not affected by fluctuations in equity markets.Opportunities of capital appreciation, however, are also limited in such funds.The NAVs of such funds are affected because of the change in interest rates in the country.If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice-versa.
Balanced plans are used to provide both growth and regular income, as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents.They generally invest 40-60 percent in equity and debt instruments.These funds are also affected by fluctuations in share prices in the stock markets. NAVs of such funds are however likely to be less volatile as compared to pure equity funds.
Money Market or Liquid Fund:
These funds are also income funds and their aim is to provide easy liquidity,preservation of capital and to ensure a moderate income.These schemes invest exclusively in safer short-term instruments such as treasury bills,certificates of deposit,commercial paper and inter bank cal money,government securities etc.Returns on these schemes fluctuate much less compared to other funds.
These funds invest exclusively in government securities.Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index funds replicate the portfolio of a particular index such as the BSE sensiive index,S&P NSE 50 index(Nifty), etc. These schemes invest in the securities in the same weightage comprising an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index,though not exactly by the same percentage due to some factors known as ‘tracking error’ in technical terms. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
Sector Specific Funds:
These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents, e.g. Pharmaceuticals,Software,Fast Moving Consumer Goods(FMCG), Petroleum stocks etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns,they are more risky compared to the diversified funds.
Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek the advice of an expert.
Tax Saving Schemes:
These schemes offer tax rebates to the investors under specific provisions of the income Tax Act,1961, as the Government offers tax incentives for investment in specified avenues, e.g. Equity Linked Savings Scheme(ELSS) pension schemes,launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest predominantly in equities. Their growth opportunities and the risks associated are likely any equity oriented scheme.
Fund of Funds (FoFs):
A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a Fund of Funds(FoF) scheme. An FoF scheme enables the investors to achieve greater diversification through one scheme.It spreads risks across a greater universe.
Gold Exchange Traded Fund (GETF) scheme-
Determination of Net Asset Value
The NAV of units under the GETF Scheme is calculated upto four decimal points as shown below:
- NAV (in terms) = Market or fair Value Of Scheme’s investments+Current Assets-Current Labilities and provision/Number of Units outstanding under Scheme on the Valuation Date.