What are Open Ended & Close Ended Mutual Funds?


by mydhanush on 7 December 2023,  5 min read

What are Open Ended & Close Ended Mutual Funds? - Dhanush by Ashika

Mutual funds are great investment avenues to channelize funds to achieve financial goals. It is a collective fund of pooled investment of the likeminded and has several types of fund schemes to offer.

Open ended mutual fund offers ease of liquidity and is quite famous amongst investors. But before ​choosing mutual fund scheme know well the policy or scheme details.

Classification of Mutual Funds depend on several criterions say the nature of investment, risk involved, periodicity of payout or time of closure. When talking about time of closure there are two types namely, open ended mutual funds and closed ended mutual funds.

In open-ended mutual funds, investors have the flexibility to issue or redeem units at any time according to their preferences. However, closed-ended funds have a fixed unit capital, permitting the sale of only specific numbers of units.

Due to the available flexibility in case of open ended mutual funds, the unit capital keeps varying and the fund witnesses an expansion in size.

Whereas in closed ended fund a buying and selling happen through recognized stock exchanges, where the units of the schemes has been listed. But to allow the investors to exit, the fund can list their closed ended scheme on a stock exchange.

While in open ended mutual funds there is much liquidity available and the investors can buy or sell units at Net Asset Value (NAV) declared on daily basis.

What are Mutual Funds?

On the other hand, closed-ended funds only allow subscriptions during specified periods and limit exit options. As a result, these funds experience less frequent sudden redemptions.

The fund managers also stay at ease for the closed ended funds are comprehensive, so whenever you invest in mutual funds, read you scheme document clearly. And in case you are not sure of which scheme to go for, take assistance from investment.

Types of Investments in Open Ended Funds:

● Large-cap fund
● Multi cap fund
● Large and mid-cap fund
● Small cap fund
● Mid-cap fund
● Contra fund
● Value fund
● Equity-linked saving scheme
● Sectoral fund or thematic fund

Open-ended funds offer high liquidity, whereas close-ended ones have no liquidity during the lock-in period. One can invest through SIP or in a lump sum. Close-ended funds allow to invest during the NFO (new fund offer).

Disclaimer: The information provided in this blog post is for informational purposes only and should not be construed as investment or trading advice. The author is not a financial advisor and does not have any professional qualifications in this area. The author does not guarantee the accuracy or completeness of the information provided. Any action you take based on the information in this blog post is done at your own risk. Please consult with a financial advisor before making any investment decisions.

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