Open Ended Mutual Funds: Meaning, Features & Comparison
The mutual funds have been regarded as one of the most reliable investments among the Indian investors, particularly beginners who desire diversification but not necessarily to be involved in selecting stocks directly. The popular type is the open ended mutual funds which out of the many categories provide flexibility, liquidity and easy accessibility. However, to be able to understand them, you must also know how they are different in comparison with close ended mutual funds, the meaning of each structure and what type should be used to meet your financial goals.
Many first-time investors hear terms like “open ended”, “close ended”, “NAV”, and “lock-in period” but rarely get a full picture of how these structures affect their investment experience. This blog breaks down everything you need to know in simple, conversational language while maintaining financial accuracy and depth-exactly the style that helps students at Trendy Traders Academy grasp concepts faster.
Open ended mutual fund allow investors to buy and sell units anytime at NAV-based pricing. This detailed guide explains what is open ended mutual fund, open ended mutual fund meaning, how they work, their benefits, open ended vs close ended mutual funds and how they compare with close ended mutual funds. Let’s begin by understanding the foundation: what is an open ended mutual fund and why investors should care.
What is Open Ended Mutual Fund?
An open ended mutual fund meaning refers to a kind of mutual fund which enables the investor to buy or sell the unit at any time depending on the Net Asset Value (NAV) of the fund. It has no maturity date, no subscription window and no limit on the number of units that can be issued.
In other words:
An open ended mutual fund always remains open for investment and redemption, making it the most flexible type of mutual fund.
The fund house continuously issues new units when investors buy and cancels units when they redeem. NAV updates daily, and all transactions occur at that day’s NAV. This structure makes open ended schemes suitable for long-term investing, SIPs, STPs, dynamic asset allocation, and goal-based planning.
How Open Ended Mutual Fund Work
Open ended funds operate on a simple mechanism:
1. Continuous Availability
You can invest or withdraw on any business day. There is no lock-in (unless it’s an ELSS fund with a 3-year lock).
2. NAV-Based Pricing
Your buy/sell price depends on the fund’s NAV at the end of the day.
3. Unlimited Units
The fund can issue unlimited units to investors. There is no limit on corpus size.
4. Professional Management
A fund manager monitors market trends, rebalances the portfolio, and allocates assets as per the scheme’s objective.
5. Liquidity
Withdrawals usually reflect in your bank account within 1–3 working days.
Why Investors Prefer Open Ended Mutual Fund?
Most Indian investors should know the difference between open ended vs close ended mutual funds and lean toward open ended funds because they offer:
Liquidity
You can redeem units whenever needed-ideal for emergencies or goal-based withdrawals.
Convenience
SIPs and lump-sum investments work seamlessly.
No Fixed Tenure
You can stay invested for as long as you want.
Market-Linked Growth
NAV rising over time leads to compounding returns.
Diversification
Even a small investment gives access to a professionally curated basket of securities.
This combination of flexibility and long-term wealth creation makes open ended funds the default choice for most retail investors. But to appreciate them even better, you need to understand their closest counterpart: close ended mutual funds.
What Is a Close Ended Mutual Fund?
A close ended mutual fund is a fund that can be purchased only during the initial offer period and has a fixed maturity. After the fund closes for subscription, no new units are created. Investors must stay invested until maturity (usually 3–7 years).
So the close ended mutual fund meaning is straightforward:
It is a mutual fund with a fixed tenure and limited entry window, where units cannot be redeemed before maturity. Once units are issued, they may be listed on stock exchanges, but liquidity is usually low.
Close Ended Mutual Fund Example
- Suppose a fund house launches the “ABC Equity Opportunities Fund,” a close ended mutual fund with a 5-year maturity.
- Subscription is allowed only during the first 30 days.
- After that, the fund closes.
- You cannot redeem your units until the 5-year period ends.
- The fund may be listed on NSE/BSE, but trading volume is generally thin.
This illustrates the rigid, time-bound structure of close ended funds.
Difference Between Open and Close Ended Mutual Funds
Understanding the difference between open and close ended mutual funds structures is essential before choosing between them.
Criteria | Open-Ended Funds | Close-Ended Funds |
Liquidity | High liquidity; investors can buy or sell anytime | Locked-in until maturity |
Subscription Window | Always open for investment | Only available during NFO (New Fund Offer) |
NAV vs Market Price | Transactions occur at NAV (Net Asset Value) | Traded on stock exchange; price may differ from NAV |
Suitability | Ideal for beginners, SIP investors, and long-term wealth builders | Suitable for investors preferring discipline and fixed tenure |
Fund Size | No limit on the number of units issued | Fixed number of units issued during launch |
This comparison also helps answer the popular question: “Which is better option?: open ended vs close ended mutual funds?”
For most investors, open ended funds offer smoother experience and better accessibility.
Open and close ended mutual funds Advantages & Disadvantages
Advantages
- High Liquidity: it is easy to deal with financial crises based on the quick redemption.
- Adaptability in Investing: Any time, start, stop, augment or modify SIPs.
- Long-Term Compounding: The preferred building of wealth in 5 to 20 years.
- Professional Fund Management: It entails professional management of assets, stocks, and risk.
- Goal Suitability: Investment in retirement and education planning, buying a residence, and others.
Disadvantages
- Market Sensitivity: NAV is changed on a daily basis depending on market movements.
- Emotional Decisions: Investors may panic and redeem during volatility.
- Over-Diversification: Too many large open ended funds can dilute returns.
- Exit Loads: Some funds charge exit loads for early withdrawals.
What Should You Choose: open ended vs close ended mutual funds?
Choosing the right type depends on your personality and goals for open and close ended mutual funds.
Choose Open Ended Funds if:
- You want flexibility
- You prefer SIP investing
- You want liquidity
- You’re investing for long-term wealth creation
Choose Close Ended Funds if:
- You want forced discipline
- You prefer structured, tenure-based investing
- You do not need liquidity before maturity
However, most investors-especially beginners-start with open ended equity or hybrid funds for ease and simplicity.
Example to Understand the Difference Clearly
Imagine two friends, Rohan and Ishita.
Rohan invests in an open ended equity fund.
- He starts a SIP of ₹5,000
- After 2 years, he needs money
- He redeems easily at NAV
- He continues SIP afterward
Ishita invests in a close ended fund with 5-year lock-in.
- She cannot redeem units before maturity
- Her units may trade at a discount on stock exchange
- She must stay invested until the scheme matures
This simple contrast shows why open ended funds dominate retail mutual fund flows.
How to Invest in Open Ended Mutual Funds
Investing is simple and can be done through:
- AMC website
- Mutual fund apps
- Brokers
- Banks
- Registered advisors
You can choose between:
- SIP (Systematic Investment Plan)
- Lump-sum
- STP (Systematic Transfer Plan)
Most investors prefer SIPs to average out cost and reduce market timing risks.
Conclusion
The mutual fund industry of India continues to be sustained by open ended mutual funds due to their availability, liquidity and the possibility of long term wealth generation. Investors have flexibility to enter or exit any time, construct disciplined SIPs and select an equity or a debt scheme or hybrid or index or thematic schemes depending on the goals.
It is good to know what is open ended mutual fund, open ended mutual fund meaning, and the difference between open and close ended mutual funds, open ended vs close ended mutual funds, and the lock-in structure, liquidity, pricing, and investment tenure to make better investment choices.
Open-ended funds offer a convenient and secure method of engaging in financial market whether saving towards retirement or a large life goal or even just beginning to invest. As usual, select funds based on risk tolerance, time horizon and investment purpose.
FAQ'S
What is close ended mutual fund?
A close ended mutual fund is a scheme having a fixed maturity period when a mutual fund can only allow the investors to purchase units during the NFO and the investors usually cannot redeem their units until they reach maturity.
What is open ended mutual fund?
An open ended mutual fund will enable investors to repurchase or sell the units at will at the Net Asset Value (NAV) of that particular fund. It has a high liquidity and is a perfect choice to invest in the long term and flexibility.
What is the difference between open ended and close ended mutual funds?
Open ended funds offer liquidity and continuous availability, while close ended funds have a locked tenure and limited entry window.
What is the close ended mutual fund meaning?
It refers to a mutual fund that remains closed for additional purchases after the NFO and has a predetermined maturity period.
Can you give a close ended mutual fund example?
A typical example is a 5-year fixed tenure equity fund launched during an NFO, where investors cannot buy units after the initial window.
Which is better: open ended or close ended mutual funds?
Open ended funds suit most investors due to liquidity and flexibility, while close ended funds work for disciplined long-term investors who don’t require early access.
