What is the Difference Between Open-Ended and Close-Ended Mutual Funds?

What is the Difference Between Open Ended and Close Ended Mutual Funds

Understanding open-ended and close-ended mutual funds is important for all investors including both residents and Non-residential Indians (NRIs) to make informed decisions on the right investment type for them. In this article, we take a look at the difference between open-ended and close-ended mutual funds, advantages/disadvantages of open-ended and close-ended mutual funds, and how to invest in mutual funds for NRIs. 

Also read: Best Mutual Funds for NRI in India 2024

What is Open Ended Mutual Funds? 

Open-ended mutual funds are your typical common form of mutual funds where the funds schemes buy and sell the units of securities on a continuous basis. This practice allows the investors the flexibility to enter or exit the scheme as per their desirability hence the name open-ended. The Net Asset Value (NAV) of the units changes every day depending on the market performance and is calculated at the end of a trading day. 

Open-ended mutual funds are not traded directly at the stock exchanges. Instead, it allows investors to buy the units directly from funds. Both resident and NRI investors have the option to enter lump sum or via Systematic Investment Planning (SIP) route into open-ended mutual funds. These funds do not have a specific fixed maturity period and allow investors to redeem the funds as per their investment decisions. 

Also read: Best SIP to Invest in 2024 – Top 10 SIP Mutual Fund Plans for NRIs/OCIs

What is Close Ended Mutual Funds? 

Close-ended mutual funds are different from open-ended funds as they are issued through a New Fund Offer (NFO), which is similar to an Initial Public Offer (IPO) in the stock exchange. NFO allows the investment company to raise funds which then are traded in the open market in a similar manner to stocks. Close-ended mutual funds have a fixed maturity date. 

The investors can only enter into the close-ended mutual funds during the NFO period and cannot exit the scheme until its maturity date. At maturity, upon the dissolution of the scheme, subsequent money gets transferred to investors at the prevailing NAV on that date. Close-ended mutual funds are often similar to Exchange Traded Funds (ETFs) due to their openly traded stock exchange options. 

Also read: Mutual Fund Vs ETF: What is best for NRIs

What is the Difference between Open-Ended and Close-Ended Mutual Funds? 

Below is a tabular representation of open-ended vs closed-ended mutual funds and the basis for differentiation. 

ParametersOpen-ended mutual fundsClosed-ended mutual funds
Fund ManagementThe fund managers need to abide by the fund objective and make decisions accordingly to generate better returns due to fear of redemption of funds by investors.In closed-ended mutual funds, fund managers look for long-term investment goals as there is no redemption pressure of funds from investors. there is no pressure on the fund manager as the investor cannot redeem the units till the end of the scheme tenure.
Maturity PeriodOpen-ended mutual fund schemes do not have a fixed maturity term and can be entered/exited as per the decision of the investor. Close-ended mutual fund schemes have a fixed maturity period which can range from 3 to 5 years. 
Listings/TradingOpen-ended schemes are not listed or traded on the stock exchange. Close-ended schemes are listed on the stock exchange and traded just like equity.
Fund sizeOpen-ended mutual fund schemes have flexible fund sizes where with the increase in the number of investors and investment amount, the fund size increases and vice-versa.Close-ended mutual funds have a fixed fund size. The fund size of the closed-ended mutual fund schemes remains fixed.
Entry/ExitThese schemes have a flexible entry/exit for the investors who can enter or exit anytime.These funds can only be entered during the NFO.
Transaction timingsThe transactions for open-ended schemes are done at the end of the day.The transactions for close-ended schemes are done in real-time.
Difference between open-ended and close-ended mutual funds

Also read: Mutual Funds Vs Equity: Which is a Better Investment for NRIs?

Advantages of Open Ended Mutual Funds

  • Liquidity and Flexibility: Open-ended mutual funds provide investors with high liquidity and flexibility. Unlike closed-end funds, open-ended funds are not restricted by a fixed number of shares. This means that investors can buy or sell their shares at any time, and the fund company is obligated to redeem the shares at their net asset value (NAV) on any business day.
  • Performance Review: Open-ended mutual funds can be reviewed in terms of performance over a period as the historical performance of the fund is readily available. Open-ended funds also calculate the NAV of the units at the end of each trading day, allowing investors an option to review the performance and make investing decisions accordingly. 
  • Systematic Investment Planning: Open-ended mutual funds allow investors to invest either in lumpsum or SIPs as per their flexibility, unlike close-ended funds where lumpsum investment is required. This allows investors to start investing without having to worry about arranging large capital for investment bringing the investing diaspora to large scale as many investors can enter into schemes. NRIs can also start investing in open-ended mutual funds for NRIs with just Rs 100. 
  • Diversification: Open-ended mutual funds offer diversification by pooling money from numerous investors to invest in a portfolio of different securities, such as stocks, bonds, or other assets. This diversification helps spread risk and reduces the impact of individual security performance on the overall fund.

Disadvantages of Open-Ended Funds

  • Market Volatility: Open-ended mutual funds are susceptible to market risks and high volatility due to fluctuations in the NAV of the underlying securities. Even with diversification strategies used by the fund manager, these funds are always exposed to market risks.
  • Lack of Control: When you invest in an open-ended mutual fund, you relinquish control over the investment decisions to a professional fund manager. While this can be an advantage in terms of expertise, it also means that you have no say in the individual securities or asset composition within the fund’s portfolio.

Advantages of Close-Ended Mutual Funds

  • Discount and Premium Opportunities: Closed-end funds often trade at either a discount or a premium to their net asset value (NAV). This characteristic can present opportunities for investors. If a closed-end fund is trading at a discount, investors can buy shares for less than the underlying assets’ value. Conversely, if it’s trading at a premium, investors may benefit from an immediate profit.
  • Fixed Capitalization: Closed-end funds have a fixed number of shares outstanding. This characteristic provides fund managers with more flexibility to make long-term investment decisions without the need to raise or redeem shares based on investor demand constantly. It also means that the fund’s assets are not subject to constant inflows and outflows of capital. This way the fund managers can keep the investment horizon in line with the objectives and build a stable asset base. 
  • Game of Supply and Demand: A similar trait to the equity market, close-ended mutual fund unit prices are decided by the market demand and supply of the scheme. With any increase in demand, the fund’s units get sold at a higher price than the scheme NAV and vice-versa. 
  • Liquidity: Although a closed-end mutual fund may appear as being illiquid, due to regulations on unit redemption and more, there are opportunities for investors to acquire and sell the units of such schemes on the stock exchange at the market rate. 

Disadvantages of Close-Ended Mutual Funds

  • Lack of past performance review: Close-ended mutual funds do not have historical performance metrics like open-ended mutual funds. This can be detrimental for investors who look to make investing decisions based on past performance of the funds and their overall metrics. 
  • Lumpsum Investment: Close-ended mutual funds offer investment opportunities for investors during the NFO period. This requires lump sum payment and is impossible for all investors to partake in. Lack of SIP entry like an open-ended scheme discourages many investors from investing in close-ended mutual funds. 
  • Poor performance: When compared to open-ended mutual funds, close-ended mutual funds have not delivered par performance over various time horizons. Despite the lock-in period feature of close-ended mutual funds allowing fund managers to make long-term investment decisions, the performance at times hasn’t been able to match the open-ended schemes. 

How to Invest in Mutual Funds as NRI? 

NRIs can now download the SBNRI App and choose to invest in different mutual funds for NRIs scheme in India with ease. You can also get detailed investment advice from experts at SBNRI. Also, visit our blog and YouTube channel for more details.

SBNRI is an authorized Mutual Fund Distributor platform & registered with the Association of Mutual Funds in India (AMFI). ARN No. 246671. NRIs willing to invest in mutual funds in India can download the SBNRI App to choose from 2,000+ mutual fund schemes or can connect with the SBNRI wealth team to better understand Mutual Fund investments.


What is an open-ended fund?

  • An investor may contribute to, redeem from, or leave an open-ended mutual fund at any time. It has no set maturity time frame.

What are mutual fund types according to structure?

  • Open-Ended Funds, Close-Ended Funds, and Interval Funds

How can NRI invest in Indian Mutual Funds?

  • An NRI can invest in Indian Mutual Funds using his/her NRE/NRO Account. The NRE Account is used to invest on a repatriable basis and the NRO Account is used to invest on a non-repatriable basis.

Can I invest from the USA in India?

  • Yes an NRI can invest from the USA in India in various asset classes such as FDs, Mutual Funds, Stocks, etc.

Can NRI invest in SIP in India?

  • Yes, an NRI can invest in India through the SIP route. SIP stands for Systematic Investment Plan.
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