Open Ended vs Close Ended Mutual Funds - Why are they different?| North Loop Official Blog
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26 Oct 2020

Open Ended vs Close Ended Mutual Funds - Why are they different?

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The securities market often sees different types of investors, ones who invest money with the aim to make a quick buck, and others who are in it for the long term. Mutual funds are segregated into 2 categories primarily on the basis of structure, sale of funds, and the pricing. One category offers convenience to users to enter and exit as per the investor’s wish while the other can only enter and exit during a set period.
The two main categories of mutual funds are open-ended and close-ended mutual funds.

What are open-ended mutual funds?

Open-ended mutual funds are what people conventionally understand by mutual funds. These are the type of funds offered through fund companies that invest money in securities, as per the discretion of the investor. The funds are managed by expert fund managers, who in turn sell shares directly to investors based on their risk appetite, fund, and expected return. The units are bought and sold at the Net Asset Value (NAV) and the units can be traded even after the New Fund Offer (NFO) period. The price of the shares is determined by the past performance of the fund and the earnings made and does not rely on the demand and supply of the shares.
When the Asset Management company issues more number of units than it repurchases, the fund increases in size and vice versa.

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What are close-ended mutual funds?

Close-ended mutual funds are a fixed number of shares that initially raise money through an IPO (Initial Public Offering) and eventually are traded on the stock exchange. The price of shares is influenced by the demand and supply factors, that fluctuate throughout the day. Close-ended funds often reap higher returns as compared to open-ended funds, however the units can be withdrawn only after the maturity of the fund (typically between 3-7 years). The only way this fund offers liquidity to investors is when the funds offer to buy back the units.

Difference Between Close Ended and Open-Ended Funds-

Difference Between Close Ended and Open-Ended Funds-
BasisOpen-ended fundsClose-ended funds
LiquidityOffers 100% liquidityDoes not assure 100% liquidity due
to it's lock-in period
NAVShows the 100% value of assets and securitiesIs offered at a discount as it suffers from liquidity based limitations
ListingNot listed on the stock exchangelisted on the stock exchange
Fund SizeFund size keeps changingFund size is fixed
Share priceDepends on the past performance of the fundDepends on demand and supply factors
Maturity PeriodNot FixedFixed Maturity period

Top 10 Open-Ended Mutual Funds-

Top 10 Open Ended Mutual Funds
NameAUM Size1 Year Returns3 Year Returns5 Year Returns
SBI Small Cap FundRs. 5,321 crores12.86%5.97%14.13%
Mirae Asset Emerging Bluechip FundRs. 11,466 crores10.9%8.15%15.08%
Aditya Birla Sun Life Banking & Financial Services FundRs. 1,464 crores-18.04%-3.36%8.9%
ICICI Prudential Banking and Financial Services FundRs. 2,685 crores -17.89%-3.32%9.09%
Invesco India Financial Services FundRs. 195 crores-10.06%2.86%11.14%
SBI Magnum Gilt FundRs. 3,693 crores12.69%9.66%10.18%
Tata Digital India FundRs. 540 crores43.99%29.31%NA
ICICI Prudential Technology FundRs. 692 crores54.15%27.73%15.84
Franklin India Feeder Franklin US Opportunities FundRs. 2252 crores47.43%26.91%19.15%
Nippon India PharmaRs. 3911 crores54.17%20.64%8.48%

Top Close-ended Mutual Funds

Top Close Ended Mutual Funds
Name1 Year Returns3 Year Returns5 Year Returns
SBI Tax Advantage Fund – Series II-2.269.6812.88
Reliance FHF XXV Series 158.288.389.00
ICICI Prudential Growth Fund – Series 14.399.0811.83
SBI Tax Advantage Fund – Series III – Regular Plan2.619.6013.02
HDFC FMP 793D Feb 2014 (1) Reg8.977.328.42

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.