I read that some mutual funds(not ETFs) trade on the exchange. Is this accurate?
There are two kinds of mutual funds
Open-ended: In these type of funds, investors can invest and redeem their investments anytime they choose to. There is no limit on the number of units available for purchase. These units are bought and sold at the Net Asset Value (NAV) which is calculated and announced by the Asset Management Company (AMC) at the end of the day. These funds don’t trade on the exchanges.
Close-ended: These type of funds have a fixed amount units on offer. You can only subscribe to these funds during the New Fund Offer (NFO) period. NFO is just like an IPO for mutual funds. Also, close-ended funds have fixed maturities and you cannot enter and exit the fund, unlike an open-ended fund. You will have to compulsorily wait for your investment to mature.
Once the NFO closes the scheme will list on the stock exchanges and trades just like an ETF. The price on the exchanges will be at a discount or premium to the NAV. Assuming a scenario where you don’t want to wait until maturity, you can sell the units on the exchanges. In most of the cases, you will be selling your units at a discount. Because, the buyer has to wait until the maturity to get his money back, so he will expect a discount to the NAV.
A word of caution. Whenever you choose to invest in a close-ended fund, it is always better to consult your financial advisor. Some of these close-ended funds have expense ratios in excess of 3%. There have been instances where some of these funds have paid trail commissions in excess of 5%.
These funds trade in MF series on NSE and F series in BSE. For example - here’s the price for ICICI Prudential Bharat Consumption Fund - Series 1 - Cumulative Option
Note: The price is what the market is willing to pay
NAV: Is the value of the assets of the funds
Both these can vary quite substantially. The Price you see on BSE/NSE is the price and not the NAV.
This article by Valueresearch explains the ills of these funds concisely
https://www.valueresearchonline.com/story/h2_storyView.asp?str=35065&rgsrc=pglmt
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