EDUCATION

Why Open-ended fund

What is an Open-ended fund?

An open-ended fund (OEF) is a professionally managed fund that lets you pool your money with other investors to purchase a collection of securities-such as stocks and bonds-across multiple corporations or other issuers (government, investment trusts). Although investors don’t directly own the securities, they mutually share in the fund’s profit or losses.

The benefits of Open-ended fund

Return on investment is the profit or loss expressed as a percentage of the initial investment. This is a widely used ratio to evaluate and rank the attractiveness of different investment alternatives. When this ratio is positive, the investor earns more than what she/he paid for the investment. Conversely, when this ratio is negative, the investor earns less than what she/he paid.

Diversification

  • Investing in just a handful of stocks can expose you to what is known as “overconcentration”. When one or two stocks that make up a significant portion of your portfolio decline in value, your overall investment performance can be severely impacted. Open-ended funds provide instant diversification by investing across dozens or even hundreds of different stocks, bonds, and other securities.
  • Further, history shows that large groups of stocks tend to ride out market volatility better than individual stocks. For example, when the market is volatile, one poor performing stock may be smoothed out by other stocks that are performing well in the same index, which may help reduce the risk to your overall portfolio than if you were invested in only one stock.

Convenience

  • Open-ended funds are easy to buy and sell, offering maximum convenience for investors. For example, if you want to invest in the stocks of 100 different companies, you could purchase each stock individually – which is both time-consuming and costly – or simply invest in a single open-ended fund that holds all 100 stocks.

Professional management

  • Having a professional manager regularly reviewing and researching the fund’s portfolio significantly reduces the workload and psychological pressure on investors. Fund managers have disciplined buying and selling processes that help investors navigate challenging market periods – when fear or uncertainty might otherwise lead them to make poor investment decisions.

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