This is the common question among the common man when someone ask the mutual fund he or she is investing is open ended or close ended. The amazing thing is approx 90% of mutual fund investor do not know about this for the fund he or she is investing.
In this article I will try to explain about open ended to close ended mutual fund.
Open ended mutual fund
In open ended mutual fund investor can enter or exit any time as per their need. The investor can purchase units of mutual fund even after fund offerings. The buy and sell of units is being done at net asset value which is NAV.
Because investor can enter or exit in open ended mutual fund as per their convenience, the number of outstanding units can go up or down hence it keep varying. In open ended fund sometimes management stop accepting new subscription in the case when they think that fund size becomes too large to manage.
Close ended mutual fund
In this type of mutual fund investor can not enter or exit anytime. In close ended mutual fund investor can enter by investing during fund offering which is NFO and can exit only at maturity date. The maturity period of close ended fund varies from 3 years to 6 years.
Because investor cannot enter or exit anytime the number of units remain fixed in this type of fund. But the fund house list this close ended fund to stock exchange which allows an option for investor to enter or exit from the fund. This depends on supply and demand rules and hence the prices are decided accordingly. Sometimes mutual fund offers and option to investor by buy back their units. SEBI has put the regulations to ensure one of the two option is provided to the investor to exit.