Open-Ended Vs Close-Ended Mutual Funds – Finance | Management Notes

Open-Ended Vs Close-Ended Mutual Funds
Types of Mutual Funds | Finance
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Management Notes

A mutual fund is a professionally-managed investment scheme, usually run by an asset management company that brings together a group of people and invests their money in stocks, bonds and other securities. Mutual funds are classified according to various attributes, such as the nature of investment, risk profile and investment philosophy. Apart from these, the funds are differentiated on the basis of their structure. ie; open-ended and closed-ended.

Open-end mutual funds are the type of funds which have no restrictions in terms of the amount of shares which the fund can issue.It is continuously available for subscription and repurchase.The closed-ended mutual fund is a pooled investment vehicle, having a fixed maturity period, i.e. 3 to 5 years, which are listed on a recognized exchange.

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Open Ended Mutual Funds

Close Ended Mutual Funds

 1. Open-end mutual funds are the type of funds which have no restrictions in terms of the amount of shares which the fund can issue.  Closed-end mutual funds are the type of funds have a fixed number of shares and are traded among investors on an exchange.
 2.  There is no fixed maturity period in open ended mutual funds.  There is fixed maturity period in close ended mutual funds. ie;3-5 years.
 3. Open Ended mutual funds are not  listed on stock exchange and transactions are performed directly through fund. Close Ended Mutual Funds are listed on a recognized stock exchange for trading.
 4. The transactions of Open Ended mutual funds are executed on a daily basis.  The transactions of Close Ended mutual funds are executed  on real time basis.
 5. Open Ended mutual funds are available throughout the year for subscription. Close Ended mutual funds are available only during specified days for subscription.
 6. In an open-ended mutual fund, the corpus is variable because of continuous buying and redemption.  In an close-ended mutual fund ,the corpus is fixed because no new units are offered for sale, beyond the limit specified.
 7. The liquidity provided by the open-ended mutual  fund is itself. The liquidity provided by the close-ended mutual  fund is the stock market.
 8. In an open-ended mutual funds,profits depend on the investors and when they exit the fund. If they have exceeded their initial investment, then it is considered as a Gain. In a close-ended mutual funds,profits to the shareholders can be in the form of income and capital gain distributions.It can also be capital gains realized from sale of shares with increasing share value though it is exposed to tax liability.
9. In an open-ended mutual funds, price is determined by Net Asset Value (NAV). In a close-ended mutual funds,price is determined by the demand and supply as well as the fundamentals.

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