Mutual Funds
Open Ended Mutual Fund
What are open-ended funds?
Open-ended funds are those mutual fund schemes that pool money from a large number of investors and remain open for investments, thereby issuing unlimited shares or units as the investments in the fund keep on increasing. Here, Investors can directly make an investment into or exit from the scheme anytime as per their will.
Open-ended funds are available continuously without any certain maturity term. These funds offer simple access in terms of liquidity. Trading of open-ended funds takes place any time after the closing of a New Fund Offer (NFO). Units of open ended funds can be bought or sold at their Net Asset Value (NAV) which is updated daily. The NAV of a fund is based on the updated value or prices of the underlying securities in the fund's portfolio.
Advantages of open-ended fundsOpen Ended Funds have numerous advantages some of which are mentioned below:
1. Liquidity
Open ended funds offer high levels of liquidity since there are no restrictions on withdrawals. The investors willing to redeem the fund units can do so at the latest Net Asset Value (NAV) on the day of redemption or NAV as per cut-off timings.
2. Access to track record
Open-ended funds provide accessibility to track the performance of funds in markets over the years which can help investors to be more informed and make better investment decisions.
3. Systematic Options Available
Open-ended funds offer systematic plans for usage by investors to make decisions regarding investments and withdrawals. Investors in open-ended funds can use SIPs, SWPs & STPs which deploy a systematic approach to making investments, withdrawals & transfers.
4. Diversified Portfolio
Open-ended funds invest in a variety of assets and hold a diversified portfolio of securities which facilitates in reducing risks associated with investments.
5. Low investment requirements
Open-ended funds require low minimum investments and thus make it accessible for every kind of investor to make investments. Investments in some open-ended funds can be made with as low as Rs.100.
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Disadvantages of open-ended funds
Open ended funds have some disadvantages too, let's have a look at them:
1. Subject to market risks
Even when open-ended funds have very diversified portfolios which are managed by fund managers, these funds are still subjected to market risks. Net Asset Value (NAV) of these funds experience fluctuations & volatilities as per the market performances.
2. Exit Loads
Open-ended funds involve exit loads which are charges levied in case the investors choose to exit from the fund. The loads are predefined and are based on the tenure of investment.
3. Maintenance of cash reserves
The open ended funds need to maintain cash reserves to meet the redemption requirements of investors. Hence, they do not remain fully invested at a given point in time.
4. NAV updated once a day
The NAV of mutual fund schemes is updated just once a day after the closing of a business day.
5. Liquidity
Liquidity can also prove to be a negative factor in the way that it might hurt the disciplinary approach of holding investments for the long term. Investors might be willing to exit from their positions in gloomy market scenarios at low rates which could hurt returns.
Who should invest in open-ended funds?Investors looking to invest in liquid instruments which do not carry any restrictions on withdrawals could invest in open ended funds. Also, depending upon their risk appetite, financial goals & investment horizon they can choose from a variety of open ended funds suitable to their needs.
Difference Between Open-Ended Funds and Close-Ended Funds1. Investment via Systematic Investment Plan (SIP)
Open-ended funds allow investors to invest via Systematic Investment Plans (SIP). On the other hand, Close-ended funds don’t allow this facility as investments are limited to the predefined term of the NFO only.
Also Read: What is Rupee Cost Averaging in SIP ?
2. Supporting Systematic Withdrawal Plans (SWPs) and Systematic Transfer Plans (STPs)
Open-ended funds support Systematic Withdrawal Plans (SWPs), and Systematic Transfer Plans (STPs) but close-ended funds don’t.
3. Duration
Open-ended funds don’t have any fixed tenure of investing or exiting from the fund whereas close-ended funds have a fixed duration.
| Parameters | Open-Ended Funds | Close-Ended Funds |
| 1. Investment via SIP | Allowed | Not Allowed |
| 2. Supporting SWPs, STPs | Supported | Not Supported |
| 3. Fixed Duration | No Fixed Duration | Has a fixed duration |
| 4. Liquidity | Yes | No |
| 5. Investments | Low minimum investments | High minimum investments |
Some of the best open ended funds across different mutual fund categories include the following funds:
| LARGE CAP | Fund Name | 3 year | 5 Year | 10 Year |
|---|---|---|---|---|
| Nippon India L arge Cap | 29.87 | 16.42 | 17.1 | |
| Canara Robeco Bluechip Equity Fund | 18.4 | 16.03 | 14.4 | |
| Baroda BNP Paribas Large Cap Fund | 19.49 | 15.77 | 14.63 | |
| SBI Bluechip Fund | 22.27 | 15.55 | 15.67 | |
| ICICI Prudential Bluechip Fund | 23.92 | 15.44 | 15.3 |
| Fund Name | 3 Year | 5 Year | 10 Year | |
|---|---|---|---|---|
| MID CAP | Quant Mid Cap Fund Growth | 38.76 | 25.49 | 17.95 |
| PGIM India Midcap Opportunities Fund | 29.47 | 23.41 | - | |
| Nippon India Growth Fund | 34.37 | 22.62 | 20.24 | |
| Motilal Oswal Midcap Fund | 37.31 | 22.5 | - | |
| SBI Magnum Midcap Fund | 34.89 | 22.38 | 21.53 |
| Fund Name | 3 Year | 5 Year | 10 Year | |
| SMALL CAP | Quant Small Cap Fund | 45.9 | 29.71 | 17.81 |
| Nippon India Small Cap Fund | 45.07 | 26.24 | 29.27 | |
| Axis Small Cap Fund | 33.2 | 25.7 | - | |
| ICICI Prudential Smallcap Fund | 38.52 | 24.93 | 18.46 | |
| Kotak Small Cap Fund | 36.19 | 24.62 | 23.17 |
A. Open-ended funds are those mutual funds that pool the investment from different investors and invest in the market to generate returns for investors as per the investment objective of the fund. These funds remain open for investment and withdrawal every time.
Q. What is the difference between open-ended and close-ended funds?A. As the name suggests, open-ended funds are open for investment and withdrawal every time, unlike close-ended funds. In open-ended funds, an investor can invest or withdraw anytime as per their requirements. However in the close-ended funds, the investment can be made only during the NFO period, and withdrawal is done at the maturity of the fund. Also, the close-ended funds have a fixed maturity period which is not the case with open-ended funds.
Q. Where do the open-ended funds invest?A. Open-ended funds can invest in equity, debt, money market instruments, or other securities. The investment and allocation are done based on the investment objective of the fund.
Q. What is the duration of entering and exiting an Open-ended fund?A. Open-ended funds don’t have any fixed tenure of investing and exiting from the fund.
Q. Are Open-ended funds a type of mutual fund?A. Yes, open-ended funds are mutual fund schemes.
Q. When can open-ended funds be redeemed?A. Open-ended funds can be redeemed at any time by investors.
Q. Do open-ended funds provide liquidity?A. Yes, open-ended funds provide high levels of liquidity.
Q. Are open-ended funds subjected to market risks?A. Yes, open-ended funds are subjected to market risks even though they generally have a highly diversified portfolio managed by professional fund managers.
Q. What are exit loads?A. Open-ended funds involve exit loads which is simply the penalty charged to the investor in case he redeems units before a pre-defined term
Q. Do open-ended funds provide accessibility to track records of funds?A. Yes, Open-ended funds provide accessibility to track the performance of open-ended funds helping investors to make more informed decisions.