Welcome back. Now let's look at different types of mutual funds. The mutual funds can be classified according to many different aspects, we will look at some of the most important aspects of classification. We first look at classification by mode of operations. This was the only classification available when mutual funds were initially introduced into the market. However, now, there are different ways of classifying, we will first look at how mutual funds can be classified according to mode of operation.

According to mode of operations mutual funds can be classified as open ended mutual funds and closed ended mutual funds. Though apparently they may look the same, but they're very different from each other. Now, there is another one third mutual fund type which is not exactly a mutual fund, which we can We'll also discuss these are known as the ETFs exchange traded funds. These have got characteristics which are hybrid between open ended mutual funds and closed Mutual funds. Let's take a look at open ended mutual funds first. Now, in open ended mutual funds, they first of all offer unlimited number of shares of investment, that is anyone can buy any number of units of mutual funds, which are open ended.

Now, these mutual funds which are open ended, they are sold on demand that is any time one can purchase this mutual fund and any time they can sell it, there is no restriction on when they can purchase and when they can sell another when the purchase of mutual fund or sell the mutual fund it is traded at the nav or net asset value. This net asset value of the mutual funds is declared every day. That is how this net asset value basically defines what is the price of one unit of the mutual fund. So, based on the price, one can purchase any number of units of mutual funds which are open ended on any day of the week which when trading is active. listed here are three mutual funds which are open ended in the Indian market. Now, the open ended mutual funds can be bought and sold at any point of time like we discuss however, to buy and sell the mutual fund, you would either have to interact directly with the AMC or through an intermediary.

Now when you place the order for buying or selling the mutual funds, normally the AMC or the intermediate re they set a time of 2pm on an on the next working day as the time before is that transaction would be executed. So, it is not that I placed the order at 10 o'clock and then order will get executed exactly 10 o'clock. Now, this delay does not really matter because the nav for a mutual fund is always fixed at the end of the day. So we will get the nav as it is defined for that particular day. Most of the mutual funds traded in today's market are open ended mutual funds. However, this was not the case when mutual funds initially started, when mutual funds were initially started, all the mutual funds are closed ended.

However, time has changed and today most of the mutual funds are open ended and very few are closed ended. Now that we have seen open ended mutual funds, let us take a look at closed ended mutual funds. Now, the most significant difference between open ended mutual funds and closed in mutual funds is that the closing of mutual funds cannot be traded on a daily basis, you can buy a closed ended mutual fund at any point of time. However, these mutual funds have something which is known as the lock in period. Now, during the locking period the closed end mutual funds cannot be sold. So, supposedly a closer in mutual funds has a lock in period of three years.

That means from the day of purchase of the mutual fund if you cannot sell that mutual fund for a period of three years. The second will be major difference is that the closing of mutual funds have one fixed number of shares. That is unlike the open ended mutual funds, the closing of mutual funds do not do not have unlimited number of shares. Now, because they have a limited number of shares, these close with mutual funds are traded between the investors who have invested in this low limit mutual funds. The another most significant difference is that the closest mutual funds are not always sold at the nav. They also have a net asset value which is declared most mostly in on a daily basis.

However, these closing in mutual funds can be sold at a premium or at a discount with selling at a premium basically means that I am selling at a nav as selling at a price which is more than the nav or selling at a discount basically means that I'm selling at a price which is less than the nav. So this is something which the traders have closer mutual funds frequently. Conduct given here are three examples of closed ended mutual funds from the Indian market. Incidentally all these three closed end mutual funds have a lock in period of three years. That is once you purchase the units in this mutual fund, you cannot sell them for a period of three years. Now that we have seen what are open ended mutual funds and closed end mutual funds, let us take a look at exchange traded funds.

Now, exchange traded funds were introduced in Canada first in 1990. In United States the first ETF was launched in 1993. In India, the first ETF was launched in 2003. exchange traded funds are hybrid between open ended mutual funds and closed in mutual funds. They are exchanged they are traded just like stocks. So, they are listed on the stock market and they are stated just like stocks now, like open ended mutual funds exchange traded mutual funds can be bought and sold at any point of time, or based on their mass that is a net asset value. However, the price at which they are sold can be at a premium or discount just like the closer mutual funds.

However, there is a difference. You don't close it with mutual funds in the sense that the price from the nav, the premium or the discount can always stay within 1% of the nav. Thank you for watching, see you in the next lecture.