What is the difference between open-ended and closed-ended mutual funds?
Open-Ended vs Closed-Ended Mutual Funds: What’s the Difference?
Mutual funds in India are categorized into open-ended and closed-ended schemes based on their structure.
✅ Open-Ended Mutual Funds
Open-ended funds allow investors to enter or exit anytime, based on the fund's daily Net Asset Value (NAV). These funds do not have a fixed maturity period.
Key Features:
High Liquidity: Buy or sell units on any business day.
NAV-Based Pricing: Transactions occur at the prevailing NAV, set daily.
No Fixed Tenure: Ideal for investors seeking flexibility.
Direct AMC Transactions: Units are purchased or redeemed directly from the fund house.
Example:
Invest ₹10,000 in a fund with ₹10 NAV → You get 1,000 units.
If NAV becomes ₹12 after a year → Your investment becomes ₹12,000.
✅ Closed-Ended Mutual Funds
Closed-ended funds are available only during the NFO period and come with a fixed maturity period, typically 3–5 years.
Key Features:
Limited Entry Window: Invest only during NFO.
Lock-In Until Maturity: Redemption allowed only after fund maturity.
Listed on Stock Exchange: Units can be traded like shares (at market price, not NAV).
Lower Liquidity: Exit is possible only via stock exchange, which may lack active buyers.
Example:
You invest ₹10,000 in a 3-year closed-ended fund during its NFO.
Redemption is possible only after 3 years unless traded on the exchange.
📘 Regulatory Guidelines
Regulated by SEBI and AMFI.
ELSS (Equity Linked Saving Schemes) are closed-ended funds with tax benefits under Section 80C and a 3-year lock-in.
Always refer to the Scheme Information Document (SID) before investing.
🧭Which One Should You Choose?
Criteria Open-Ended Funds Closed-Ended Funds Liquidity High Low (via exchange) Entry Flexibility Anytime Only during NFO Exit Flexibility Anytime At maturity only Risk Moderate Market-dependent Ideal For Long-term investors with flexibility needs Investors willing to lock funds for a fixed term
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