Mumbai: Mutual funds in India are categorised according to their investment structure. There are two types of structure: open-ended mutual funds and closed-ended mutual funds.
What are open-ended funds?
Open-ended funds are always available for investment and redemption, and therefore, they are known as open-ended mutual funds. These funds are the most common type of mutual funds that investors in India invest in. They have no lock-in periods or maturities, so they are perpetually available. The Net Asset Value (NAV) of open-ended funds is determined daily based on the value of the underlying securities at the end of the day.
What are closed-ended funds?
When you invest in a closed-ended mutual fund plan, your money is locked in for a specific period of time. You can only buy mutual fund units of closed-ended schemes during the New Fund Offer (NFO) period and sell them after the lock-in period or after the scheme’s term has ended.
After the lock-in period, some closed-ended funds may become open-ended, or the proceeds may be transferred to another open-ended fund with the investors’ approval.
Some investment experts believe that the lock-in period of closed-ended funds provides stability to the fund’s assets, allowing the fund manager to build a portfolio with long-term growth potential without worrying about investors selling off their units.
Understand the difference between open-ended and closed-ended mutual funds
The key difference between open-ended and closed-ended mutual funds is that open-ended funds always provide a high level of liquidity and flexibility as one can invest through Systematic Investment Plans (SIPs), while closed-ended funds only provide liquidity after the stated lock-in period or at the fund’s maturity.
Which one to opt between open-ended funds and closed-ended mutual funds?
Again, the decision to choose between open-ended and closed-ended funds depends on the investor’s needs and objectives. Closed-ended funds may provide more stability for long-term investors, while open-ended funds offer liquidity and flexibility. In India, open-ended funds are much more popular due to many advantages against closed-ended mutual funds.
Mutual funds are a great way to invest in the financial markets. Understanding the distinctions between open-ended and closed-ended funds can help investors make knowledgeable decisions. Open-ended funds offer liquidity and flexibility, while closed-ended funds may be more appropriate for investors with specific investment goals and a longer investment horizon. By assessing their investment objectives and risk tolerance, investors can select the right type of mutual fund to meet their financial needs.
For smart investing, it is important to understand how open-ended mutual funds differ from closed-ended mutual funds. Make sure the fund you choose aligns with your investment horizon and risk tolerance. Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
