What is the difference between an open-ended and close-ended scheme
As an investor, you can buy and sell open-ended funds at any time as per your convenience.
Close-ended funds an investor can buy its units only during the NFO period.
Mutual funds are classified into open-ended and closed-end funds. As the name implies, an investor can enter or exit anytime in the case of open-ended funds. In other words, these funds can issue and redeem units at any time during its life. The number of units in this scheme can fluctuate daily. Closed-ended funds are those in which an investor can buy funds only during the IPO or from the exchange when they are quoted. It cannot issue new units any time except in case of rights issue or bonus. Take a look at the difference between open-ended and close-ended mutual fund schemes.
Open-ended mutual funds
As an investor, you can buy and sell open-ended funds at any time as per your convenience. It can buy and sell continuously even after the initial offering period (NFO). Investors can buy and sell units at the net asset value declared by the fund. That means, this fund remains open and never seems to close. The number of outstanding units of open-ended funds goes up and down always when the fund houses repurchase or sell the existing units. For this reason, the unit capital of this fund type keeps varying.
If the fund house sells more units than its repurchases, the size of the fund expands, whereas it reduces when the fund house repurchases units more than it sells. The open-ended fund need not keep selling new units every time. Sometimes management finds it difficult to manage a large-sized fund, they stop accepting requests from investors for new subscriptions. But fund houses repurchase the units anytime.
Close-ended mutual funds
Close-ended funds are another type of mutual fund, but an investor can buy its units only during the NFO period. This fund pools resources from various investors through issuance of New Fund Offer (NFO). Its units sell at a price based on the NAV of the mutual fund that issues the NFO.
Difference between Open-ended funds and Close-ended funds
As an investor, you know the main difference between the open-ended and closed-ended funds are its entry and exit restriction. Apart from that, it has many other differences. An open-ended fund launches officially once the NFO period is over. And investors can enter and exit this type of fund any time after their needs. Another difference is that close-ended funds cannot invest via SIP due to its limited NFO period. Close-ended mutual funds also do not support SWPs (Systematic Withdrawal Plans) and STPs (Systematic Transfer Plans.
In Open-ended fund, you invest money by buying shares at the NAV value. Besides, these funds decide the market value of their assets at the end of each trading day. But close-ended funds issue a fixed number of shares only which are traded in the over-the-counter market or stock exchanges. The fund does not issue more shares once all the shares are sold. Besides, these funds do not trade at their Net Asset Value (NAV).
Mutual funds are classified into open-ended and close-ended funds. Close-ended funds have a set of shares and trade on the open market, while open-ended funds issue new shares based on the current NAV of the fund. These funds always reflect the net asset value. But both these funds are managed by professional fund managers.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.