What Is A Close-Ended Mutual Funds?

What Is A Mutual Fund – Where Does It Invest?


A mutual fund is a collection of funds that is professionally managed by a fund manager.


Mutual funds are schemes that are floated by trusts (it is an entity that supervises the mutual fund through the trustees). A mutual fund invests money in stocks, bonds, money market instruments, and/or other securities after collecting funds from a number of participants who have similar investing goals. The asset management company is appointed by the trust to make investment decisions in relation to the fund such as where to invest and to manage other day-to-day affairs of the mutual fund. 


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Mutual funds are schemes that are floated by trusts (it is an entity that supervises the mutual fund through the trustees). Mutual fund invests money in stocks, bonds, money market instruments, and/or other securities after collecting funds from a number of participants who have similar investing goals. Asset management company is appointed by the trust to make investment decisions in relation to the fund such as where to invest, and to manage other day to day affairs of the mutual fund.  he income / gains earned from this collective investment are dispersed proportionately among the investors after taking into account any necessary expenses and levies. Simply explained, a mutual fund is made up of the money that many different investors pooled together by a .


Let’s now examine “Net Asset Value,” often known as NAV. A mutual fund unit has a Net Asset Value per Unit, much like an equity share has a market price. Mutual fund unit is comparable to a share of a company .The market value of all the shares, bonds, and other securities held by any mutual fund on a given day is its NAV (as reduced by permitted expenses and charges). The NAV per unit is the market worth of all the units in a mutual fund scheme on a certain day, less all costs and obligations and income earned, divided by the number of units still outstanding in the scheme.


Mutual funds are the best option for investors who don’t have a lot of money to invest or who don’t have the time or desire to do market research but still want to increase their wealth. Professional fund managers invest the money raised in mutual funds in accordance with the scheme’s declared goals. The fund house requests a tiny fee in exchange, which is subtracted from the investment. The Securities and Exchange Board of India has set limits on the fees that mutual funds may charge as part of regulation (SEBI).


Closed-Ended Funds: What Are They?


An investor cannot enter or leave a closed-ended mutual funds before the period of the fund expires, as the name implies. 


Only a predetermined number of units are issued by the fund during launch. It only has a limited period where subscriptions are accepted. Closed-ended mutual funds offer either repurchase of the units from investors at NAV to give them a way to exit the investment at certain periodic intervals or get the mutual fund listed on the stock exchange. Fund houses are required by SEBI laws to provide investors one of these two exit options. Investors who bought units during the NFO and subscribed to close-ended  mutual funds can sell them on the stock exchange if it is listed or wait for period redemption window where the mutual fund will buy-back the mutual fund. 


Investors cannot pick the SIP path for these products; they can only be invested in as a lump sum.


The fixed tenure for closed-ended funds is typically 5-7 years. But if an investor decides to leave the fund, they can do so by reselling their units on the stock market (if it is listed). Despite trading on the stock exchange, a closed-ended fund’s total number of outstanding units remains constant.


The regular and unexpected redemptions, as well as the fund size, are not of concern to the fund managers of these funds. In order to achieve the fund’s goals, this enables the fund managers to experiment and practise choosing investments freely.


How Does A Close-Ended Mutual Fund Work?


Like any mutual fund, a closed-ended fund is introduced through a New Fund Offering (NFO). Investors apply for this fund at the allotted time and become subscribers. The fund house lists the fund on the stock exchange once the NFO closes (if it is a listed closed-ended mutual fund).


The quantity of units, won’t change in case of listed close-ended funds.


Additionally, the fund house has the option to not to list the close-ended fund but to offer periodic repurchase windows to its investors at NAV. NAV serves as the foundation for the closed-ended fund’s value. The supply and demand for the fund, however, affect the final price. These funds might therefore trade at a premium or a discount to NAV.


Investors have the option to keep its funds invested in close-ended mutual funds until it matures, which typically takes between five and seven years. The fund’s offer document will contain all information about the fund, its tenure and investment objectives.


Differentiation With Open Ended Mutual Fund


Open-ended funds are extremely liquid; one can redeem them at any moment. Unlike close-ended funds, which have a fixed lock-in term.


Capital Management

There is no redemption pressure on the fund manager in close-ended funds. However, the situation is slightly different in open-ended funds. The investment plans must be followed by the fund management. The fund manager is under a lot of pressure since investors are willing to redeem their investments if the performance of the fund goes down.


Purchasing, Selling, and Trading


On stock exchanges, typically majority of closed-ended funds are traded. Majority of the open-ended funds, on the other hand, are not traded on stock exchanges.


Value of Net Assets ( NAV)


One purchase for open-ended funds based on the fund’s current NAV. However, closed-ended funds may be purchased at a premium or at a discount to its NAV if they are listed on the stock exchange depending on the supply and demand on the stock exchange.




Every day, the public can subscribe to an open-ended mutual fund, which means they can give their units in exchange for money. On the other hand, closed-ended fund subscriptions are only available for a brief time, during the new fund offer subscription period.




There is no predetermined maturity duration for open-ended funds, whereas closed-ended funds do have a predetermined maturity period.




The open-ended fund’s corpus can fluctuate due to frequent purchases and redemptions. Closed-ended funds have a fixed corpus because no fresh units are offered for sale that would surpass the set cap.


Differentiation Based On Merits – Close Ended Mutual Funds


Continuous Asset Support


Investors in these mutual funds are not allowed to redeem fund units other than on the periodic repurchase windows or on the date on which fund expires. This provides portfolio managers with a consistent foundation of assets that are not used for frequent redemptions. The fund manager is in a good position to create an investing strategy because of a constant asset basis. Without worrying about inflows or outflows, he or she maintains an overall awareness of the fund’s objectives.


Market Rates And Accessibility


Closed-ended mutual funds typically are sold or purchased like listed equity shares on stock exchanges. This allows investors the opportunity to trade fund units depending on current prices. Additionally, the NAV of the fund may have a bigger premium or a smaller discount. They are able to use margin trading, market/limit orders, and other typical stock trading strategies.


Flexibility And Liquidity


Investors are free to use the fund’s liquidity. They can manage market pricing by using real-time prices that are available during the trading hours of the stock exchange.. Real-time data gives them the flexibility to choose their investments.


Differentiation Based On Merits – Open Ended Mutual Funds


An excellent investment choice for a sizable portion of investors in the salaried class is open-ended funds. The reason for this is that they can begin a SIP investment into the fund of their choice.




Because one can redeem fund units as desired, open-ended funds offer good liquidity. Open-ended funds offer the flexibility of redemption at the current NAV in contrast to other long-term investment options, which can be very illiquid.


Track Record Readily Available


Past performance data is available for open-ended funds. So choosing to invest in an open-ended fund is a wise decision.


Shortcomings Of Close-Ended Funds


No Track Record: Investors cannot examine the previous performance of closed-ended schemes throughoutF several market cycles, unlike open-ended schemes. due to the lack of previous data. As a result, while choosing a fund, the experience and knowledge of the fund manager are crucial.


Lump-Sum Only: Closed-ended schemes only accept lump sum investments, and only during the NFO. New contributions to the fund cannot be made after the NFO closes. Therefore, only lump sum investments are permitted. This prevents investors who want to make SIP investments from doing so in these funds.


Less Successful: In the past, closed-ended schemes haven’t outperformed their open-ended counterparts especially Nifty and Sensex tracking index funds. Closed-ended fund lock-in periods, which are meant to provide fund managers more freedom to allocate capital without worrying about withdrawals, haven’t contributed to higher returns.


Examples of Close-Ended Funds


Examples of close ended funds are as follows ICICI Prudential Growth Fund – Series 2, SBI Tax Advantage Fund – Series II, ICICI Prudential Growth Fund, ICICI Prudential R.I.G.H.T. Fund.


Who Ought To Invest In Closed-End Funds?


Investors who want to invest for a set period of time should use closed-ended funds. Investors that are okay with a lock-in period can think about investing in these funds, even though the units are traded on the stock market.


Due to their set term, these funds might not offer sufficient capital gains. These funds are available to investors who want to put money aside and wait. These funds don’t offer SIP, either. Only lump sum investments can be made in them by investors. Therefore, individuals who feel comfortable investing a large sum of money can choose to invest in these funds.




A closed-end fund is a form of mutual fund that, in order to raise money for its initial investments, issues a predetermined number of units through a single initial public offering: New Fund Offering . After that, its units can be purchased and sold on a stock exchange, but no new units will be issued by the close ended mutual fund.


Open-ended funds, on the other which include the majority of mutual funds and exchange-traded funds (ETFs), accept a continuous stream of fresh investor capital. Open-ended mutual funds keeps on issuing new units. 


As an investor you should read the offer document carefully and decide which category of mutual fund suits you. 


Did you know? You can now invest in close-ended funds on Kuvera:


Step 1: Download the Kuvera app or visit our website. 


Step 2: Create your account on Kuvera by completing the mandatory KYC procedure. This will hardly take a few minutes. Once that’s completed,  select the ‘Invest’ option on our homepage after which you can select ‘Mutual Funds’ and ‘Close-Ended’. 


Step 3: Kindly go through the list of all zero-commission direct plans of ‘Close Ended’ schemes to start investing. 


Frequently Asked Questions:


  • Is there any risk of investing in Close-Ended?


All investments in mutual funds are subject to market risk amongst other risks. Market risks, concentration risks, and risks of volatility. 


  • Are all close-ended funds listed on stock exchange?


Not all close-ended funds are listed on stock exchange as per SEBI regulations a fund house should either list the close ended mutual fund on any stock exchange or provide periodic buyback windows to the investors. In case a fund house does not list the close ended mutual on the stock exchange in that case it lists 


  • How can you redeem units of an close-ended funds?


Units of close-ended mutual funds can be redeemed only upon completion of the tenure of the scheme or on opening of periodic redemption window. To redeem your close ended mutual fund investments, you must place a redemption request with the relevant fund house. You can also redeem them from the websites of RTAs (Registrar or Transfer Agents) or third parties. 


  • Can you invest through SIP in a close-ended mutual funds ?


One cannot invest through SIP in a close-ended mutual funds. Close ended funds are open only for a specified period after which they do not take in any investment.


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