ndian inan ial       ar et     11.7
     management company (AMC) and the operations                 new fund offer (NFO) in India. Thereafter,
     of the AMC are under the guidance of another                these units are listed on the stock exchanges
     group of people, called trustees. Both, the people          where they are traded on a daily basis.
     in the AMC as well as the trustees, have a fiduciary        As these units are listed, any investor
     responsibility, because these are the people who are        can buy and sell these units through the
     entrusted with the task of managing the hard-               exchange. As the name suggests, close-
     earned money of people who do not understand                ended schemes are managed by fund
     much about managing money.                                  houses for a limited number of years, and
          A fund house or a distributor working for              at the end of the term either money is
     the fund house (which could be an individual,               returned to the investors or the scheme
     a company or even a bank) are qualified to sell             is made open ended. However, there is a
     mutual funds. The fund house allots the ‘units’             word of caution here that usually, units of
     of the MF to the investor at a price that is fixed          close ended funds which are listed on the
     through a process approved by SEBI, which is                stock exchanges, trade at a high discount
     based on the net asset value (NAV). In simple               to their NAVs. But as the date for closure
     terms, NAV is the total value of investments in             of the fund nears, the discount between
     a scheme divided by the total number of units               the NAV and the trading price narrows,
     issued to investors in the same scheme. In most             and vanishes on the day of closure of the
     mutual fund schemes, NAVs are computed and                  scheme.
     published on a daily basis. However, when a fund      (iii) Exchange-Traded Funds (ETFs): ETFs
     house is launching a scheme for the first time, the         are a mix of open-ended and close-ended
     units are sold at Rs. 10 each. There are three types        schemes. ETFs, like close-ended schemes,
     of schemes offered by MFs:                                  are listed and traded on a stock exchange
          (i) Open-ended Schemes: An open-ended                  on a daily basis, but the price is usually
              fund is one which is usually available             very close to its NAV, or the underlying
              from an MF on an ongoing basis, that               assets, like gold ETFs.
              is, an investor can buy or sell as and when           If investment have been done in a well-
              they intend to at a NAV-based price. As            managed MF, the advantages outweigh
              investors buy and sell units of a particular       disadvantages in the long term, which
              open-ended scheme, the number of                   is 10 years or more. There is a very high
              units issued also changes every day and            probability for investors of making more
              so changes the value of the scheme’s               money than by investing in other risk-free
              portfolio. So, the NAV also changes on             investments such as FDs, public provident
              a daily basis. In India, fund houses can           fund etc. Advantages of investing in MFs
              sell any number of units of a particular           include:
              scheme, but at times fund houses restrict          (a) diversification of portfolio,
              selling additional units of a scheme for
                                                                 (b) good       investment        management
              some time.
         (ii) Closed-ended Schemes: A close-ended
                                                                 (c) liquidity,
              fund usually issue units to investors only
              once, when they launch an offer, called            (d) strong government-backed regulatory