What is an open-ended mutual fund? All you need to know

As the name suggests, open-ended mutual funds are always open to investment along with redemptions. In the world of mutual funds, open-ended funds are a common type of investment. One of the key highlights of these funds is that they don’t have any form of lock-in period or maturities. Hence, it is always open. 

An open-ended mutual fund is an investment scheme where the shares can be issued and redeemed at any time. Based on data from (the Association of Mutual Funds in India) AMFI, a total of 14 open-ended mutual funds were launched in March 2021 with a total mobilization of INR 4539 crores.  

In an open-ended mutual fund, you have to calculate the (Net Asset Value) NAV daily on the value of underlying securities at the end of the day. Here are some essential things to know about open-ended mutual funds.

Difference between an open-ended mutual fund and a close-ended mutual fund 

To be precise, there are various types of differences between open-ended mutual funds and close-ended mutual funds. Here are the primary differences between the two mutual funds: 

1. Liquidity  

In open-ended mutual funds, investors enjoy higher liquidity. Simply put, you can purchase or sell units at any time except the units of ELSS funds.

The units are locked-in for three years from the date of investment. This is one of the primary advantages of open-ended mutual funds compared to close-ended mutual funds.  

On the contrary, close-ended mutual funds have no liquidity during the lock-in time. You can redeem your units only after the mandatory lock-in period is over.  

Ways in which you can invest  

In open-ended mutual funds, you can invest via lump sum and through SIPs. Moreover, you can make any number of purchases in the fund.  

On the contrary, in close-ended mutual funds, you can only invest during the (New Fund Offer) NFO. In other words, you cannot invest in SIPs.  

1. Investment amount  

In an open-ended mutual fund, you can start investing with as minimum as INR 500 or INR 1000.  

On the contrary, in a close-ended mutual fund, the minimum amount for investment is INR 5000.  

2. Track record of the funds  

You can invest in open-ended mutual funds by carefully checking the track record of the schemes in which you want to invest.  

Since you can purchase close-ended funds only during the NFO period, no track record is available. Investing in a close-ended fund requires attention and minute assessment. 

3. Average rupee cost 

Through SIPs in open-ended mutual funds, you can take benefit of rupee cost averages of the unit price. In the case of lump sum amount, you can also invest based on the market fluctuations. You can also add more units if the market is stable.  

On the other hand, in close-ended mutual funds, there is no average rupee cost. This is because close-ended mutual funds don’t accept any investments when the NFO period gets over. 

open ended mutual funds
source: pixabay

Advantages of open-ended mutual fund 

1. Liquidity  

As an investor, you can redeem the units of open-ended mutual funds. There is no lock-in period that makes you enjoy the liquidity of open-ended mutual funds.  

2. SIP availability  

In open-ended mutual funds, you can purchase units on any working day. You can even set up a systematic investment plan to deposit a fixed amount.  

3. Performance of the funds  

You can easily assess the performance of the funds and their past records in an open-ended mutual fund.  

Disadvantages of open-ended mutual fund 

1. High volatility  

The NAV of open-ended mutual funds fluctuates based on the performance of its underlying securities.  

2. Relatively high risk 

Open-ended mutual funds have a relatively high risk attached to them since the NAV of the funds fluctuates on a daily basis due to market volatility.  


Is SIP an open-ended mutual fund? 

Open-ended mutual funds allow you to track the performance of the fund, which assists in making informed decisions. In other words, SIP is an integral component of open-ended mutual funds and allows you to enjoy greater flexibility.    

How do I know if the mutual fund is open-ended? 

There are various ways to know if the mutual fund is open-ended or not. For instance, an open-ended mutual fund contains SIPs. Moreover, you will enjoy greater flexibility and market regulations in an open-ended mutual fund.  

Is the Index fund open-ended? 

In case you didn’t know, index funds are open-ended. It attempts to replicate an index like the S&P 500. Hence, it doesn’t allow the manager to actively select securities to purchase. 

Investing in mutual funds is a great way to enhance your investment portfolio. By knowing about open-ended mutual funds, you will be able to gain greater flexibility. Open-ended funds are suitable for investors who can invest in a liquid investment instrument and undertake market risks.

Consult an expert advisor to get the right plan for you   

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