Mutual Funds Day 9: Open vs Close Ended Funds

Open-ended funds mean that the AMC accepts fresh inflow of money even after the launch date. Closed-ended funds on the other hand do not allow fresh investments.

Close-ended funds have a predefined target, a clear maturity date, and an exit plan. Whereas open-ended funds are perpetual and the AUM keeps growing if the scheme is popular and performing.

From an investor perspective, the choice of opting for open or close-ended funds depends entirely on the tenure & goals. If the investor has a clear target and does not wish to redeem the funds in advance — a close-ended fund with a fixed maturity plan is suitable. Whereas investors who are not sure about the target, objective, or fund requirements in the future could opt for open-ended schemes.

Open-ended funds are more popular among retail investors as most of their allocation styles would be SIPs. When you regularly invest every month, selecting a fund that accepts further inflow is capital is preferred.

Since the AMCs do not accept fresh cash infusion to close-ended funds, the only way to buy/sell them is via the secondary market i.e. stock exchanges. These funds will be up for trading and you can choose to transact based on the Bid/Ask price. You might have to check for liquidity and slippages before committing. The transaction is between a buyer and seller and the total funds held with the AMC will not change.

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