An open-ended mutual fund permits flexible buying and selling, providing a cost-effective means for investors to access diversified portfolios for income or growth, targeting specific sectors or companies with low entry requirements, making it easily accessible.
Open Ended Mutual Fund Meaning
Open-ended mutual funds offer flexible buying and selling, allowing investors to access diversified portfolios for income or growth, target specific sectors or companies, and have low entry requirements, making them easily accessible and cost-effective for a wide range of investors.
Open Ended Mutual Fund Example
Investment Company A had three investors, each with Rs 1,500, totaling an AUM of Rs 4,500. A fourth investor added Rs 1,500, raising the AUM to Rs 6,000. When two investors exited, AUM fell to Rs 3,000 without impacting individual holdings or NAV.
In this example, the total money managed by Investment Company A went up and down because investors joined and left. However, each investor’s amount and the overall fund’s value stayed the same. This is similar to how open-ended mutual funds work.
Features of Open-ended Mutual Fund
The main feature of open-ended mutual funds is their high liquidity, allowing investors to withdraw their investments easily without delays or complications. This feature provides flexibility and quick access to funds, making them a preferred choice for risk-averse individuals and those with short-term investment goals.
1. Diversification for Portfolio Enhancement
Open-ended mutual funds offer diversification benefits by investing in a wide range of stocks in small proportions. This helps spread risk across various assets, reducing the impact of individual stock fluctuations on the portfolio. Diversification enhances investment stability.
2. Enhanced Liquidity
Investors in open-ended mutual funds enjoy high liquidity as they can easily withdraw their investments without delays or complications. This feature makes these funds attractive to risk-averse individuals who prioritize quick access to their funds.
3. No Fixed Maturity Period, Providing Flexibility
Open-ended mutual funds do not have a predetermined maturity date. Investors have the flexibility to stay invested for as long as they desire. This lack of maturity period allows for long-term or short-term investment strategies, depending on individual preferences.
4. Expert Professional Management
Open-ended funds are professionally managed by seasoned experts who make investment decisions based on thorough research and analysis. This professional expertise can lead to superior investment outcomes compared to individual investors who may need more resources and knowledge for effective portfolio management.
Advantages of Open Ended Mutual Funds
The primary advantage of open-ended mutual funds lies in their exceptional liquidity. Investors can swiftly buy or sell units daily, ensuring their funds remain easily accessible when required, providing a flexible and convenient investment option.
- Accessibility and Liquidity
Open-ended mutual funds provide investors with the convenience of quickly accessing their investments. You can buy or sell units daily, ensuring your money is readily available.
- Professional Expertise
These funds are managed by skilled professionals who make investment decisions on your behalf. This expertise is a valuable asset, especially for those needing more time or knowledge to manage their investments actively.
- Diversification for Risk Reduction
Open-ended mutual funds pool investments from multiple individuals and spread them across various assets, such as stocks, bonds, or a mix of both. This diversification helps lower the risk associated with investing in individual securities.
- Tax Advantages
Investing in open-ended funds can offer potential tax benefits. This includes exemptions on long-term capital gains and tax-efficient dividend distribution options, which can enhance your overall returns.
Difference Between Open-Ended And Closed-Ended Funds
The main difference between open-ended and closed-ended funds is that open-ended funds allow investors to subscribe to units throughout the year, offering continuous flexibility. In contrast, closed-ended funds have a limited subscription period, making new units available only for a specific timeframe.
Structure
Open-ended mutual funds continuously offer units to investors, providing accessibility all year round. In contrast, closed-ended funds have a limited-time offering, making new units available only for a specific duration.
Investment Options
Investors in open-ended funds can choose between SIPs (Systematic Investment Plans) and lump-sum investments. Closed-ended funds, on the other hand, restrict investors to lump-sum investments, excluding SIPs.
Transaction Execution
Open-ended funds execute transactions at the end of the trading day, while closed-ended funds provide real-time execution, responding to supply and demand.
Maturity
Open-ended funds do not have a fixed maturity period, offering flexibility. Closed-ended funds typically have a fixed maturity period of 3 to 5 years.
Liquidity Provider
Open-ended funds rely on their assets for liquidity, while closed-ended funds are listed on regulated stock markets, where supply and demand determine liquidity.
Listing and Issue Size
Open-ended funds are not listed on stock exchanges and handle transactions directly. Closed-ended funds are listed on stock markets with a fixed issue size.
Assets Under Management (AUM)
Open-ended funds experience constant fluctuations in AUM, reflecting investor activity. Closed-ended funds maintain a fixed AUM.
Tax Benefits
Open-ended funds may offer tax benefits, particularly in the case of ELSS (Equity-Linked Savings Schemes) investments. Closed-ended funds typically do not provide tax benefits.
Fund Control
In open-ended funds, the fund manager’s control over the portfolio can be limited due to potential redemptions. Given the stable asset base, closed-ended funds grant the fund manager complete control over portfolio management.
Analysis and Comparison
Investors can analyze and compare similar open-ended schemes based on their historical records. As there is no historical record, comparisons or analyses are impossible in closed-ended funds.
Best Open Ended Mutual Fund
The table below shows the Best Open Ended Mutual Fund based on a 3-year CAGR.
| Name | AUM (in Cr) | NAV ( Rs ) | CAGR 3Y ( % ) |
| Axis Small Cap Fund | 18615.72 | 99.11 | 30.99 |
| Kotak Emerging Equity Fund | 36527.95 | 116.34 | 27.02 |
| SBI Small Cap Fund | 23716.95 | 165.02 | 27.02 |
| Axis Midcap Fund | 23549.10 | 99.38 | 20.93 |
| ICICI Pru Bluechip Fund | 47928.62 | 98.83 | 20.56 |
| SBI BlueChip Fund | 40740.72 | 86.20 | 17.07 |
| Mirae Asset Large Cap Fund | 37969.17 | 107.13 | 15.66 |
| SBI Equity Hybrid Fund | 64202.02 | 268.35 | 14.04 |
| Axis Bluechip Fund | 33171.04 | 59.07 | 11.51 |
| UTI Flexi Cap Fund | 25503.37 | 295.02 | 11.49 |
What Is an Open-Ended Mutual Fund? – Quick Summary
- Open-ended mutual funds offer flexible buying and selling and cost-effective access to diverse portfolios for income or growth, targeting specific sectors or companies, with low entry requirements for easy accessibility.
- The main feature of Open-ended Mutual Funds is that you can quickly get your money back whenever you want. This is great for people who prefer to avoid risks or have short-term goals.
- The primary advantage of open-ended mutual funds is their exceptional liquidity, enabling investors to swiftly buy or sell units daily, ensuring convenient access to funds.
- The main distinction between open-ended and closed-ended funds lies in their subscription dynamics. Open-ended funds offer continuous investor subscriptions, ensuring flexibility, whereas closed-ended funds restrict subscriptions to specific timeframes.
- The best open-ended mutual funds based on 5-year returns are SBI Small Cap Fund, Mirae Asset Emerging Bluechip Fund, and ICICI Prudential Banking & Financial Services Fund.
- Start your investment adventure with Alice Blue today by initiating the process of opening a demat account for free.
Open Ended Mutual Fund Meaning – FAQs
What are open-ended mutual funds?
Open-ended mutual funds are investment funds without a limit on the number of shares they can issue. Investors can buy or sell shares at any time at the current net asset value (NAV).
What is the difference between open-ended and closed funds?
The main difference between open-ended and closed funds is that open-end funds allow continuous buying and selling, adjusting the fund’s size. Closed-end funds have a fixed number of shares traded on exchanges, and their price can differ from the net asset value.
What are the advantages of open-end funds?
The advantage of open-end funds is that open-end funds offer liquidity, as investors can buy or sell shares at any time. They are managed actively, adjust to market conditions, and often have lower minimum investment requirements than closed-end funds.
Can open ended funds be purchased and sold?
Yes, investors can buy and sell open-ended mutual fund shares directly from the fund at the current net asset value (NAV) throughout the trading day.
What is the lock-in period for open-ended mutual funds?
Open-ended mutual funds typically do not have a lock-in period, allowing investors the flexibility to enter or exit the fund at any time without facing restrictions.
