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Part - III

Classification of Mutual Funds on the Basis of their Maturity

On the basis of their maturity the funds can be classified as open ended and close ended. Open-ended fund are those, which are available for subscription and repurchase on a continuous basis. Open-ended fund required to redeem its holdings as and when the investor wishes to liquidate his holdings. It implies that the fund should be choosy in its investment and should hold highly liquid & easily marketable securities in its portfolio. The problem in open-ended fund arises when the redemptions are higher than fresh purchases in the fund. In such a scenario the fund will have to liquidate a part of its assets to meet the excessive redemptions. These schemes do not have a fixed maturity period. They are usually bought and sold at the net asset value, which are declared on a daily basis. Close-ended funds, which issue shares at the time of the IPO, can liquidate their holdings at the end of their fixed maturity period. This strengthens the liquidity position of the mutual fund. Most common open-ended funds prevalent in the country are Alliance-95, Birla Advantage Fund etc. A close-ended fund or scheme has a stipulated period of 5-7 years. To provide an exit route for the investors the Securities And Exchange Board Of India has given an option of selling the units back to the mutual fund through periodic purchases at NAV related prices. Such schemes disclose the NAV generally on a weekly basis. Examples of Close ended funds are BOB ELSS-9S, Canpep9s, ICICI power, etc.

Classification of Mutual Funds on the Basis of Investment Objective

On the basis of their investment objective Mutual funds can be classified as growth funds, balanced funds, income funds and money market funds. Growth funds provide capital appreciation over medium term to long term. These schemes invest primarily in the common stock with the objective of high potential and growth. The mutual funds in these categories are Alliance Basic Industries, Alliance Front Line Equity Fund, Nifty Bees, Birla Advantage Fund, Birla Index Fund, Birla Mid Cap Fund, Bob Growth Fund, Can Equity Diversified, Chola Opportunities Fund; DSP Merrill Lynch Mutual Equity Fund, etc.

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* Contributed by -
Sarthak Kumar Rath,
PGDBA (Finance), ICFAI Business School,
Currently working as Associate Consultant at ICIT Software Center Pvt. Ltd.