Financial Awareness Level
What Are Closed-Ended Mutual Funds?
Closed-ended mutual funds are investment funds with a fixed number of units that investors can buy only during the initial offer period. Unlike open-ended funds, these funds are listed on stock exchanges, where investors can trade them like stocks.
How Do Closed-Ended Funds Work?
- Investors can invest only during the fund’s New Fund Offer (NFO) period.
- After the NFO, units are traded on the stock exchange at market prices.
- Fund managers invest the collected capital in securities based on the fund’s objective.
- Investors can exit by selling units on the stock exchange or waiting until maturity.
Key Features of Closed-Ended Funds
1. Fixed Maturity Period: Typically ranges from 3 to 7 years.
2. Listed on Stock Exchanges: Allows trading at market prices, which may be at a premium or discount to NAV.
3. No Continuous Inflows or Redemptions: Fund managers focus on long-term strategies without redemption pressure.
4. NAV vs. Market Price: Market price fluctuates based on demand and supply, independent of NAV.
Benefits of Investing in Closed-Ended Mutual Funds
- Disciplined Investing: Fixed tenure helps investors stay invested for the long term.
- Potential for Higher Returns: Managers can take strategic long-term bets without redemption pressures.
- Market Liquidity: Investors can trade on exchanges, offering flexibility.
- Diversification: Exposure to a variety of asset classes depending on fund strategy.
Who Should Invest in Closed-Ended Mutual Funds?
- Long-Term Investors: Those who can commit funds for a fixed duration.
- Market-Savvy Investors: Individuals comfortable with trading on stock exchanges.
- Those Seeking Higher Returns: Investors looking for potential capital appreciation.
Risks Associated with Closed-Ended Mutual Funds
- Liquidity Risk: Selling on an exchange depends on market demand.
- Price Volatility: Market prices fluctuate due to demand and supply, sometimes trading below NAV.
- Lock-In Period: No early redemption except via stock market trading.
How to Invest in Closed-Ended Mutual Funds?
1. Invest during the New Fund Offer (NFO) period.
2. After NFO closure, buy or sell units on a stock exchange through a broker.
3. Monitor fund performance and market trends.
Closed-ended mutual funds are ideal for investors who prefer a structured investment approach with the potential for long-term capital growth. However, they require a clear understanding of liquidity constraints and market risks before investing.
For further details click the link - Association of Mutual Funds in India SEBI Classification of Mutual Fund - HDFC Mutual Fund
Disclaimer:
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
FAQ Section
Can I exit a closed-ended fund before maturity?
Yes, you can sell units on the stock exchange, but prices may differ from NAV.
Do closed-ended funds provide better returns than open-ended funds?
Not necessarily; returns depend on fund strategy and market conditions.
Are dividends paid in closed-ended funds?
Some funds may offer periodic dividends, depending on the fund’s structure.
Is there a minimum investment amount for closed-ended funds?
Yes, the minimum amount varies by fund house and is specified during the NFO.
Clos
Did you find this article Interesting?
1
2
3
4
5
Recommended For You
Beginner
What Are Mid-Cap Mutual Funds?
5 min read
Beginner
What Are Small-Cap Mutual Funds?
5 min read
Beginner
What is a Mutual Fund?
5 min read
Disclaimer
An Investor Education And Awareness Initiative Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. if they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.gov.in. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
