What is Open ended mutual fund?

Open ended mutual fund is a fund scheme in which investor is allowed to buy and sell units of mutual fund at any point of time. After new fund offerings (NFO) of a particular mutual fund, investors are allowed to purchase and redeem units of a fund on every business day.Open ended fund does not have any expiry or maturity. In open ended mutual funds there are chances of increasing and decreasing number of outstanding units as a result of redemption and new purchases. This in turn affects fund size or total asset value or capital of scheme. Thus, portfolio manager has to mitigate the risk of fluctuating fund size.

What are main advantages and highlights of Open ended mutual fund?

• Investor can buy mutual fund units even after initial public offerings or new fund offer is over. This makes it easy for investor to buy units after doing research and viewing historical returns of that particular mutual fund scheme.
• Investor can redeem and purchase any number of units on any specific business day. This makes it more useful for starting SIP on regular basis and entering and exiting from fund according to market risks, fund growth and returns.

What is Close ended mutual fund?

Close ended mutual fund is a fund scheme in which investor can purchase mutual fund scheme in initial public offerings or new fund offering (NFO) only. After timeline is over an investor cannot subscribe or buy and sell mutual fund units until expiry or maturity date. However, to allow investor to buy and sell units, these mutual funds are traded on stock market like shares. Because the fund is traded like stocks there can be comparatively greater ups and downs to the NAV of scheme. NAV value can fluctuate based on demand and supply ratios in market. In some cases mutual fund company may offer buy backs of units. In close ended fund, capital or fund size is not varied as there is no direct redemption and purchase with mutual fund company,but are exchanged in secondary market with traders.

What are main advantages and highlights of Close ended mutual fund?

• Investor can buy close ended fund at much lower price and sell at higher price as it is traded like others stocks on stock market.
• Total capital remains unchanged as the redemption is not directly related to mutual fund company making fund manager more focused over managing assets properly. It is free from risk of fluctuating capital.
• Close ended funds are meant for long term investment. Investor cannot redeem it before maturity which makes it more suitable for long term investment.
• Investor can subscribe for lump sum investment when fund is available as New Fund Offerings (NFO).

What are disadvantages of Close ended mutual fund?

• It comes with risk of discounted or lower unit price as it is traded on stock market. Condition may worse if market is crashed and downfall is seen.
• SIP option is not available in close ended mutual funds and investor can buy only in lump sums. This disadvantage restrict it from most of the investor to not go for close ended funds.
• Investor buys a close ended fund in a hope that the unit price will grow often and steadily but reverse is possible in close ended funds which might narrow down the investor's money.
• Returns provided by close ended funds are in general lesser than open ended funds.
• Investor cannot see historical graphs and data for analysis purpose. Investor has to do more analysis on fund manager's strategy and has to monitor the securities performance himself which are in the portfolio of that mutual find.