Open Ended Funds and Closed Ended Funds
In this article we are going to discuss about Open Ended Funds and Closed Ended Funds meaning, features and difference.
Open Ended Funds Meaning
Open ended funds are those funds which are open for investors to entry or exit at any time, even after the NFO. In such funds, maturity period is not specified and investors can enter or exit from the fund any time they with. The most important feature of this type of fund is that it offers liquidity to the investors. These funds are not listed on any stock exchange but investors can redeem their investors directly through the mutual funds institutions in which they have invested. Entry and exit price of the units of open ended mutual funds are calculated by dividing net assets under management of the fund with number of units outstanding.
Features of Open ended funds
a) It has no lock in period and investors can enter or exit any time they wish.
b) The investors can subscribe this fund at any time.
c) It provides prompt liquidity to investors.
d) The investors have an option to redeem their holding at any time.
e) These funds are not listed on any stock exchange.
Closed ended funds Meaning
Closed ended funds are those which have a fixed maturity period, normally three to five years. Investors can buy units of a closed-ended scheme from the fund only during its NFO. After the close of NFO, investors can buy or sale units of close-ended fund only through stock exchange where these funds are listed. These funds are listed on stock exchange where investors can sale their units of mutual funds at the prevailing market price. Prices of units of closed ended funds are determined by the forces of demand and supply in stock exchange. These funds are ideal for long term investors.
Features of Closed ended funds
a) It has a lock in period of 3 to 5 years.
b) The investors can enter into these funds only through NFO.
c) Closed ended fund can be redeemed only through stock exchange or at the end of lock in period.
d) These funds are listed on stock exchanges.
e) These funds are suitable for long term investors only.
Difference between Open Ended Funds and Closed Ended Funds
|
Basis |
Open Ended Funds |
Closed Ended Funds |
|
Lock in period |
It has no lock in period and investors can enter or exit any time they wish. |
It has a lock in period of 3 to 5 years. |
|
Listing |
These funds are not listed on any stock exchange. |
These funds are listed on stock exchanges. |
|
Entry |
The investors can subscribe this fund at any time. |
The investors can enter into these funds only through NFO. |
|
Redemption |
The investors have an option to redeem their holding at any time. |
Closed ended fund can be redeemed only through stock exchange or at the end of lock in period. |
|
Investors perspective |
These funds are suitable for short term investors. |
These funds are suitable for long term investors. |