Open Ended and Close Ended Mutual Funds: Key Differences

23 Mar 2021|

1 min read |

by ICICI Securities Team

Mutual funds are classified according to various factors, including their sector, size, asset class and flexibility. These include open ended funds and closed end funds. The fundamental difference is that while an open ended fund opens to investors on a continuous basis, a closed end fund is only available for a limited period of time.

Key Differences Between Open-Ended and Close-Ended Funds:

Availability

Open ended funds can be bought or sold at any time, but you can buy closed-ended funds only during NFO (New Fund Offer) or from the stock exchange after they are listed.
In the case of an open-ended fund, the fund is open for a subscription even after the closure of NFO and the units can be redeemed whenever required by the investors. But in the case of a closed-ended scheme, the fund liquidates once it crosses the maturity date, and the funds are distributed to subscribers based on their holdings. In few cases, closed-ended funds can be converted into open-ended funds after maturity.

Fixed Corpus

While open ended funds don’t have a fixed maturity or corpus, the closed funds have a fixed corpus and a term usually ranging from three to five years. So if you are looking to invest in a closed ended fund, you must be prepared to block those funds for a specified period.
The constant buying and selling in an open-ended fund makes the corpus variable, while in a closed ended scheme, the corpus is fixed at a specified limit.

Liquidity and listing

The liquidity in the case of open ended funds comes from the actual fund, while in the latter it comes from the market.
An open ended fund, however, is not listed on the stock exchange, and all transactions are performed directly through the fund. Closed ended funds are listed on a reputed stock exchange to provide liquidity to the investors.

Unit Price

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Mutual Funds Investment | What Are Open Ended And Closed Ended Funds @ICICIdirectOfficial

You can transact in the open ended mutual fund at the existing NAV (Net Asset Value) of the scheme. However, closed ended scheme prices may be different from the NAV because they trade on exchanges.

There are other technical differences in both funds, but the above are the fundamental differences which should influence your decision on whether to invest in closed ended or open ended mutual funds, or both.

Tax Benefits

Open-ended funds like ELSS can be tax-savers! They qualify for tax deductions on your investment amount. Closed-ended funds themselves might not offer tax breaks, but their holdings (like stocks) could depend on the type. Remember, taxes on gains still apply!

Disclaimer

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