Many fund houses have come up with “closed ended funds” which have been the rage with distributors lately, largely (almost entirely) because of the much higher commission structure. Should you buy into the madness? If it’s the rage with distributors because of commissions, the answer should be a BIG NO. Let’s see why. Firstly, what the heck are closed ended funds? Here’s a video we did a long time back: (Ignore the points about capital gains after one year, now it’s three years for debt funds. ) The concept is: You buy now You can’t sell until the “term” of the fund is over You can’t buy any more either, because closed ended actually means closed right after the beginning. At the end of the term you’ll get your money (if it’s grown, with a profit, else with a loss) Why do distributors like it? Because they get more commissions. Remember that mutual funds pay commissions to distributors and adjust it as part of their management fee, which can be a max of 2.5% of total assets.… (Read On…)
[via Capital Mind]
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