What are Close-Ended Funds?

There are two common categories included in mutual funds: open-ended and close-ended mutual funds. Open-ended funds offer flexibility in buying and selling at any time, while closed-ended funds operate with a fixed structure. But remember it also offers certain advantages and limitations.  

In this blog, we explain to you about what are close-ended mutual funds, how they work, their benefits, and risks with real-time examples. This guide will help you make informed decisions.  

What are Close-Ended Funds?

Close-ended mutual funds are investment schemes that come with a fixed maturity period, typically 3 to 5 years. These funds are open for subscription only during the NFO (New Fund Offering) period. After completing the NFO period, no new investors can join, or existing ones can exit until maturity. To offer some liquidity, these funds are listed on stock exchanges that will help investors to buy or sell units like stocks.  

Types of Close-Ended Mutual Funds

Like open-ended funds, close-ended funds also have various types that are based on asset allocation: 

Types	Definition
Equity close-ended funds	These are aim for long-term capital appreciation and ideal for investors with high-risk appetite.
Debit close-ended funds	It’s safer and suitable for conservative investors and they can invest in bonds and debentures.
Hybrid close-ended funds	Combination of equity and debt instruments, offering balanced risk-return profile.
Fixed Maturity Plans (FMPs)	Most popular close-end debt fund, it has a fixed tenure and invest in instruments

Benefits of Close-Ended Funds

Close-ended funds offering you many benefits some of them are listed below; 

Benefits	Definition
Stability	Fund managers can plan long-term strategies by using this strategy, and they don’t need to worry about sudden withdrawals.
Disciplined Investing	It can prevent impulsive decisions, because the investment is locked in for long and fixed terms so they can think long-term.
Better Returns	Because of the stability of funds, fund managers can deploy strategies to get better returns.
Market Price Based on Demand	Selling on the stock exchange at prices that are determined by the demand and units of the scheme.

Drawbacks of Close-Ended Mutual Funds  

Before we decide, it’s better to know the drawbacks of close-ended mutual funds that are given below; 

Drawbacks	Definition
Limited Liquidity	Investors can’t redeem their units before the end of the maturity period.
Only Lump Sum Option	It offers only Lump sum option, unlike open-ended funds, close-ended funds didn’t offer SIP.
Driven by Fund Manager	In open-ended schemes, investors can analyze the performance of a mutual fund scheme in different market situations. This data is available with the scheme, but in closed-ended funds this is not available.
Market-driven Prices	If liquidity is low on the stock exchange, you must face challenges while selling units.

Performance of Close-Ended Funds

*Source: AMFI

		Latest NAV		5-Year Return (%)
Scheme Name	Benchmark	Regular	Direct	Regular	Direct	Benchmark
Aditya Birla Sun Life Frontline Equity Fund	Nifty 100 TRI	527.5000	582.4800	22.23	23.05	21.49
Axis Large Cap Fund	BSE 100 TRI	60.3600	69.3700	16.45	17.67	22.46
Bandhan Large Cap Fund	BSE 100 TRI	76.4780	87.7310	20.80	22.25	22.46
Baroda BNP Paribas Large Cap Fund	Nifty 100 TRI	221.1996	254.8164	20.90	22.36	21.49
Canara Robeco Bluechip Equity Fund	BSE 100 TRI	63.2000	72.9200	20.69	22.34	22.46
DSP Large Cap Fund	BSE 100 TRI	477.2320	521.0330	21.47	22.43	22.46
Edelweiss Large Cap Fund	Nifty 100 TRI	84.3500	96.6900	21.18	23.07	21.49
Franklin India Bluechip Fund	Nifty 100 TRI	1020.3326	1128.6118	20.06	21.00	21.49
Groww Large Cap Fund	Nifty 100 TRI	42.5900	51.0100	18.52	20.18	21.49
HDFC Large Cap Fund	Nifty 100 TRI	1136.7040	1228.5730	23.16	23.88	21.49

Examples of Close-Ended Funds

Some of the closed-end mutual funds offered in India is given below; 

🠖 ICICI prudential growth fund – series 2 

🠖 Sundaram Long Term Tax Advantage Fund Series III 

🠖 SBI Long Term Advantage Fund Series III 

🠖 Reliance FHF XXV Series 15 

🠖 Axis Fixed Term Plan – Series 96 

These funds offer a fixed maturity period, and the funds are open for subscription only in their NFO periods.  

Conclusion

If you are searching for a disciplined and long-term fund, close-ended mutual funds are ideal for all investors. We have already seen that there are so many benefits like stability and better returns, but they come with some drawbacks like limited liquidity and lump sum option. So, you can choose the fund according to your financial goals and risk appetite.  

Do you want to invest in mutual funds by solving your doubts? Navia Markets is here for you to assist in your investment journey.  

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DISCLAIMER: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Brokerage will not exceed the SEBI prescribed limit.