Financial Awareness Level
What Are Open-Ended and Close-Ended Mutual Fund schemes?
Mutual fund schemes are categorized into open-ended and close-ended schemes based on their structure and liquidity. Understanding these types helps investors choose the right scheme based on their financial goals and investment horizon.
What Are Open-Ended Mutual Fund schemes?
Open-ended mutual fund schemes allow investors to buy and sell units at any time. These schemes do not have a fixed maturity period and are highly liquid, making them a popular choice among retail investors.
Key Features of Open-Ended Mutual Fund schemes:
- Liquidity: Investors can enter or exit at any time.
- NAV-Based Pricing: The price of units is determined by the scheme’s Net Asset Value (NAV), which changes daily.
- No Fixed Maturity: Suitable for long-term wealth accumulation.
- Flexibility: Allows systematic investment (SIP) and withdrawal (SWP) options.
What Are Close-Ended Mutual Fund schemes?
Close-ended mutual fund schemes have a fixed maturity period and a limited subscription window. Investors can buy units only during the initial offer period and can exit only after maturity, unless the scheme is listed on a stock exchange.
Key Features of Close-Ended Mutual Fund schemes:
- Fixed Maturity: Typically ranges from 3 to 7 years.
- Traded on Stock Exchanges: Some close-ended schemes are listed, allowing investors to buy and sell through exchanges.
- Limited Liquidity: Investors must wait until maturity unless they sell on the exchange.
- Fund Management Stability: Managers can follow long-term strategies without frequent inflows and outflows.
Which One Should You Choose?
- Open-Ended schemes: Suitable for investors looking for liquidity, flexibility, and long-term growth.
- Close-Ended schemes: Ideal for investors with a long-term horizon who do not need frequent access to their schemes.
Choosing between open-ended and close-ended mutual fund schemes depends on an investor’s liquidity needs, risk tolerance, and financial goals. Carefully evaluating both options can help in making an informed investment decision.
Additional Links:
What is a Mutual Fund? - Beginner's Guide to Investing
AMFI - Introduction to Mutual Funds
FAQ Section
Can I redeem my investment in a close-ended scheme before maturity?
Only if the scheme is listed on a stock exchange, otherwise, you must wait until maturity.
Which type of scheme is better for SIP investment?
Open-ended schemes are better for SIPs as they allow periodic investments.
Do close-ended schemes provide relatively better returns than open-ended schemes?
Not necessarily. Returns depend on market conditions and fund management strategies. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
Are close-ended schemes riskier than open-ended schemes?
Close-ended schemes carry higher liquidity risk as investors cannot exit freely.
Did you find this article Interesting?
1
2
3
4
5
Recommended For You
Beginner
How Can I Open a Demat Account?
5 min read
Beginner
Know the Documents Required to Open a Demat Account Online
5 min read
Beginner
How Much Time Does It Take to Open a Demat Account?
5 min read
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.sebi.gov.in/scores-home/. 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.
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
