Open-ended Vs Close-ended Mutual Fund: Which fund is good for investment?

financialexpress.com:

Mutual funds offer investors the opportunity to invest in a diversified portfolio of securities managed by professionals. They are broadly categorized into two types: open-ended and close-ended funds. Understanding the differences between these two types can help investors make informed decisions based on their financial goals and risk tolerance.

Open-ended funds are a type of mutual fund that do not have restrictions on the transfer of shares. These funds are available for subscription and redemption throughout the year, providing investors with high liquidity. The Net Asset Value (NAV) of open-ended funds is calculated at the end of each trading day based on the value of the fund’s underlying securities. While most open-ended funds do not have a fixed maturity date, Equity Linked Savings Schemes (ELSS) have a lock-in period of 3 years. Unlike close-ended funds, open-ended funds are not traded on the stock exchange.

“Close-ended funds issue a fixed number of units during the New Fund Offer (NFO) period, after which no new units can be purchased. These funds have a specified maturity date and a lock-in period, during which investors cannot redeem their investment. Once the fund is listed on the stock exchange, investors can trade the units, but the volume of trading in close-ended funds is generally low. Close-ended funds may offer a lower expense ratio compared to open-ended funds,” says Rishabh Goel, MD, Tailwind Financial Services.

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Liquidity: Open-ended funds offer high liquidity, allowing investors to redeem their investment at any time. Close-ended funds have limited liquidity, as redemptions are allowed