Jargons
What are Open-Ended and Closed-Ended Funds?
Open-ended funds allow investors to redeem investments at any time and form the biggest part of the mutual fund market. Closed-ended funds issue a fixed number of units and can only be redeemed when the fund matures.
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Key takeaways
- Open-ended funds allow investors to redeem their investment at any time, making them liquid.
- Closed-ended funds issue a fixed number of units, and investors can only redeem them when the fund matures.
- Open-ended mutual fund units are bought and sold at their Net Asset Value (NAV).
- Closed-ended funds are traded in the market, similar to stocks, after their New Fund Offer (NFO) has expired.
What are Open-ended Funds?
Open-ended funds are the funds in which an investor can redeem their investment at any time he wants. Thus, the main characteristic of the fund is its liquid nature. Most of the investors want to invest in this type of fund. Open-ended funds form the biggest part of the mutual fund market. There are no limits on the number of units which can be issued.
These open-ended mutual fund units are bought and sold at their Net Asset Value or NAV. These funds are more suitable for investors who have less or no knowledge of the markets. An open-ended mutual fund's NAV varies according to the performance of securities and its distribution inside a fund. Hence, they are prone to market risks and are highly volatile.
Top 5 Open-Ended Mutual Funds in India 2023
Fund Name
5 Year Return
SBI Small Cap Fund
25.1%
Mirae Asset Emerging Bluechip Fund
21.19%
Motilal Oswal NASDAQ 100 Exchange Traded Fund
22.04%
Aditya Birla Sun Life Banking & Financial Services Fund
15.04%
ICICI Prudential Banking & Financial Services Fund
13.93%
(Figures as of December 19, 2023)
What are Closed-Ended Funds?
Closed-ended funds are the funds which issue a fixed number of fund units. Unlike, open-ended funds, the investors can redeem their units only when the fund matures. Investors cannot purchase or redeem units of this type of fund once the NFO (New Fund Offer) has expired. Similarly to stocks, these funds are traded in the market.
Just like a stock is launched via an IPO, a new fund is launched via an NFO. Thus, these closed-ended funds can be liquidated only as per the fund norms and not as per the investor's wish. As the investments are rigid, it gives more space to the portfolio managers to get a stable base of assets.
Top 5 Closed-Ended Mutual Funds in India 2023
Fund Name
5 Year Return
Quant Tax Plan Direct Growth
30.36%
Bandhan ELSS Tax Saver Fund Direct Plan Growth
20.52%
Parag Parikh ELSS Tax Saver Fund Direct Growth
24.67%
Kotak ELSS Tax Saver Fund Direct Growth
19.18%
SBI Long Term Equity Fund Direct Plan Growth
19.84%
(Figures as of December 2023)
Frequently asked questions
What are open-ended funds?
Open-ended funds are funds in which an investor can redeem their investment at any time they want.
What are closed-ended funds?
Closed-ended funds are funds which issue a fixed number of fund units.
How are open-ended mutual fund units bought and sold?
Open-ended mutual fund units are bought and sold at their Net Asset Value or NAV.
When can investors redeem units of closed-ended funds?
Investors can redeem their units of closed-ended funds only when the fund matures.
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