Open-Ended vs Closed-Ended Mutual Funds: Difference and Comparison

We hear the term ‘mutual funds’ being used in bank advertisements regarding loan policies, well, it is a financial tool that collects money from many people and invests it in bonds, stocks, or other assets.

They are put to use for generating emergency funds and money for retirement. Open-Ended and Close Ended are the two types of mutual fund schemes.

Key Takeaways

1. Open-ended funds allow investors to buy and sell shares at any time, while closed-ended funds have a fixed number of shares traded on an exchange.
2. The net asset value (NAV) of open-ended funds is calculated daily, whereas the NAV of closed-ended funds is determined by market demand and supply.
3. Open-ended funds offer greater liquidity and flexibility, while closed-ended funds provide more stable long-term investment opportunities.

Open-Ended Mutual Funds vs Close Ended Mutual Funds

An open-ended mutual fund is a type of investment fund that does not have a fixed number of shares. Instead, the fund continuously issues and redeems shares based on investor demand. A closed-ended mutual fund is a type of investment fund that has a fixed number of shares that are issued through an initial public offering (IPO).

Open-ended mutual fund investors can subscribe to invest and withdraw to redeem any amount on any business day. It is available for repurchasing and subscription continuously. Investors needing intermittent liquidity may look into investing in Open-Ended Mutual Funds. 

Whereas in close-ended mutual funds, through an initial public offering IPO, the investors can raise a fixed amount of capital city fund manager overseas closed-end mutual funds search trading works similar to securities and considered a publicly traded investment company. 

Comparison Table

Parameters Of Comparison	Open-Ended Mutual Funds	Close Ended Mutual Funds
Liquidity	These schemes have very high liquidity.	There is no liquidity during the lock-in period.
Ways of Investing	Individuals can begin investing starting from a lump sum as well as in SIPs.  They can make any number of purchases.	The only option to buy close-ended funds is during their NFO period, After that no track record is available.
Track Record	Those interested to invest in Open-Ended schemes are advised to check the track record of the scheme’s performance.	They will not be able to view the track record of Close Ended schemes as they can only be bought during their NFO period.
Rupee Cost Averaging	Investment should be based on market level and more units can be added when the markets are down.	There is no averaging facility in these funds as they don’t accept any investments after the NFO period is over.
Small Investment Amount	Individuals can start investing from the minimum amount of Rs 500 or Rs 1000 in an Open-Ended Mutual Fund.	Generally, the least amount that the individual can give for the investment is Rs 5000 in a Close Ended Mutual Fund NFO.

What are Open-Ended Mutual Funds?

Open-Ended Mutual Funds are very open towards investments and redemptions, hence it is rightfully named Open-Ended Mutual Funds. Open-ended funds are the foremost common sort of investment in mutual funds in India.

These funds don’t have any lock-in period or are subject to maturities; therefore, it’s open perennially.

Generally, open-ended funds don’t have any maximum limit (of AUM) up to which they can collect investments from the public. In open-ended funds, the NAV is calculated daily on the worth of the underlying securities at the top of the day.

These funds are unlisted on stock exchanges. Open-end funds verify the market price of their assets at the tip of every mercantilism day.

For instance, a balanced fund that invests in each common stock and bond uses the closing costs of the stock and bond holdings for the day to work out the market price.

Open-ended funds are first and Closed-Endedespread among individual investors, those who have exposure to them through a 401(k) or different company-sponsored retirement savings plan.

Associate fund permits investors to participate within the markets and have an excellent deal of flexibility relating to when and after they purchase shares.

What are Close Ended Mutual Funds?

A Closed-Ended fund theme is wherever your investment is latched bound for a fixed amount of some time.

You’ll subscribe to shut-over themes solely throughout the new fund-provided amount (NFO) and redeem the units solely once the lock-in amount or the tenure of the scheme is over.

However, some closed-over funds become open-over once the completion of the lock-in amount, or someday AMCs would possibly transfer the take of closed-over funds post the maturity amount to different open overfund.

However, to do to the current, consent of the investors of the aforementioned closed-over fund is needed.

Whereas examination open over and closed-over funds, some investment consultants argue that the lock-in amount of closed fund ensures that the assets of the fund stay stable due to the specified lock-in that provides the fund manager flexibility to form a portfolio with extended-term growth potential, while not fearing outflows through redemption like in an open-ended fund.

Main Differences Between Open-Ended Mutual Funds and Close Ended Mutual Funds

1. Open-Ended-term growth open-ended high liquidity, whereas Close-Ended Schemes offer no liquidity during the lock-in period.
2. Open-Ended Mutual Funds are more flexible in comparison to Close Ended mutual funds.
3. People can start investing with small sums in the case of Open-Ended but have to pay a very high amount just for a minimum investment.
4. Investors can buy in or buy out at any time interval in Open-ended, but it is limited to a period in close-ended.
5. A track record is available for open Ended, but no track record is available for close-ended.

References

1. https://search.proquest.com/openview/13e198a82ee462c929c57e5ce05e6fba/1?pq-origsite=gscholar&cbl=2050138
2. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1653632