Close Ended Mutual Funds

There are different types of mutual fund schemes that are available in India. These include open-ended mutual fund schemes, close-ended mutual fund schemes and tax-saving mutual fund schemes. Opting for the close-ended mutual fund schemes in India will provide you with certain advantages that other types of mutual fund schemes would not. An increasing number of Indians are now opting to invest their money in close-ended mutual fund schemes.

What is a close-ended mutual fund scheme?

A close-ended mutual fund scheme clearly stipulates the maturity period, which could be anywhere between 2 to 15 years of time. You can make investments on a close-ended mutual fund scheme as soon as they are issued. Later on, you are free to buy or sell close-ended mutual fund scheme units when they are listed on the stock exchange.

Important details

Once the units are listed on the stock exchange, the market price of the close-ended mutual fund scheme units could vary depending on factors like:

The expectations of the unit holders.
Demand for and supply of scheme units.

Generally, the units of the close-ended mutual fund schemes are traded on the stock exchange at a price less than its Net Asset Value or NAV. On nearing maturity, the difference between the scheme unit's trading price and NAV may narrow significantly.

How a close-ended mutual fund scheme benefits the fund manager?

Liquidity management

Since a close-ended mutual fund scheme has a fixed tenure before it matures, the fund manager does not have to worry about the corpus at his disposal. In an open-ended scheme, the fund manager will have to deal with inflow and outflow of money on a continual basis, leaving the person with only a vague idea of how the corpus would look over a certain period of time. In other words, a close-ended mutual fund scheme benefits a fund manager in terms of efficient liquidity management.

Security from short-term market fluctuations

Close-ended mutual funds offer a certain security from short-term market fluctuations vis-a-vis the investments managed by the fund managers. The fixed tenure for maturity allows fund managers to work with investments on a long-term perspective.

Close-ended mutual fund schemes in India

Kotak Mahindra Mutual Fund
Tata Mutual Fund
Standard Chartered Mutual Fund
ICICI Prudential Mutual Fund
HDFC Mutual Fund
LIC Mutual Fund
Sundaram Mutual Fund

Related Resources:

Advantages of Close ended Mutual Fund

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