Mutual funds are investment strategies that allow you to pool your money together with other investors to purchase a collection of stocks, bonds, or other securities that might be difficult to recreate on your own. It offers you the simplest way of investing in increasingly complex financial markets. With the advantages of diversification, liquidity, professional management, etc. available with Mutual Funds, you can be sure of peace of mind with regards to the growth of your hard earned money. Note that mutual fund investors do not actually own the securities in which the fund invests; they only own shares in the fund itself.
Mutual Fund can be Open End and Closed end funds
Open End Fund:
In simple terms, an open-end mutual fund is when a company aggregates money from many investors and invests the money in stocks, bonds, short-term money-market instruments or other securities. These funds buy and sell units on a continuous basis and, hence, allow investors to enter and exit as per their convenience. The units are bought and sold at the net asset value (NAV) declared by the fund. Investors purchase mutual fund shares directly from the fund itself at a price that is determined by the fund's per-share net asset value (NAV) plus any shareholder fees that the fund imposes at purchase (such as sales loads). Mutual fund shares are "redeemable": when the holder of the mutual fund shares wants to sell those shares, he or she sells them back to the fund (or to a broker acting for the fund) at their approximate NAV minus any fees the fund imposes at that time (such as deferred sales loads or redemption fees). Open-end fund shares cannot be bought or sold in secondary markets, such as the Nepal Stock Exchange. The number of outstanding units goes up or down every time the fund house sells or repurchases the existing units.
Closed Ended Fund:
The unit capital of closed-ended funds is fixed and they sell a specific number of units. Unlike in open-ended funds, investors cannot buy the units of a closed-ended fund after its Initial Offering period is over. This means that new investors cannot enter, nor can existing investors exit till the term of the scheme ends. However, to provide a platform for investors to exit before the term, the fund Manager list their closed-ended schemes on a stock exchange.
Trading on a stock exchange enables investors to buy and sell units through a broker in the same manner as transacting the shares of a company. The units may trade at a premium or discount to the NAV depending on the investors' expectations of the fund's future performance and prospects. The demand and supply of fund units and other market factors also affect their price.
The number of outstanding units of a closed-ended fund does not change as a result of trading on the stock exchange. The closed-ended funds are free from the worry of regular and sudden redemption and their fund managers are not worried about the fund size.
Functions and Duties of Fund Supervisor:
Function and Duties of Fund Manager:
Function and Duties of Depository: