Types of funds – Open ended or Close ended


Open-end Funds

An open-end fund is one that has units available for sale and repurchase at all time – from the fund itself. An investor can buy or redeem units from the fund itself at a price based on the Net Asset Value (NAV) per unit. This is like making a fixed deposit with the bank. If you want to make a deposit , you go to the bank with a cheque. If you want money, you go with the fixed deposit, correct?

Similarly, if you have money and wan to buy Open-ended units, you take a cheque to the MUTUAL FUND HOUSE. If you want a redemption you go with the units to the fund house and they give you money. Clearly Open ended funds are liquid only with the issuing fund house.

Close-end Funds

A close ended fund makes a one-time sale of a finite number of units. The fund house just issues the units ONCE – after that liquidity is provided by listing it on a stock exchange.

Today all schemes are made to look like Close ended mutual funds – however all of todays’ schemes are neither full open ended or fully close ended!

Funds do offer “buy-back of funds/units” thus offering another avenue for liquidity to closed-end fund investor.

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2 Comments on “Types of funds – Open ended or Close ended”

  1. Ravinder Makhaik Says:

    Subramoney,

    Could you elaborate what a close ended fund with a minimum lock-in period is.

    On the surface it appears like a fixed deposit with a bank, how does it differ and what opinion do you hold about this kind of funds, since it gives the fund house much more liberty to get maximum benefit as the risk of sudden withdrawal by investors is eliminated .


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