October 31, 2025
4 mins read
Mutual funds may seem similar, but they come in two main types: open-ended and closed-ended. Both pool investor money into diversified portfolios, yet differ in structure and liquidity. Open-ended funds issue fresh units whenever investors buy in, allowing easy entry and exit at daily Net Asset Value (NAV).
They’re like shops that never close, offering flexibility and accessibility. Closed-ended funds, however, issue a fixed number of units at launch, similar to theatre tickets. Once sold, they can only be traded on the stock exchange, where prices depend on supply and demand rather than just NAV.
So, let’s unpack open-ended funds a little more. These are mutual funds that never close their gates to investors. Buy today, buy next week, or next year — they’ll issue new units based on the NAV of that day.
The real charm here is liquidity. You can enter or exit when you feel like it, since NAVs are updated daily. Add in SIPs (Systematic Investment Plans) and it becomes a flexible tool for people who like steady, bite-sized investing. Personally, the idea of not being locked in has always made these funds feel less intimidating.
Closed end funds work differently. They launch during an NFO (New Fund Offer), issue a fixed number of shares, and that’s it. After that, if you want in or out, you have to use the stock exchange. No direct redemption with the fund.
Because of this structure, they often feel more stable in size — the fund manager doesn’t have to worry about constant inflows or outflows. But they’re less liquid compared to open ended funds. You’re tied in until maturity unless you sell in the market, which can be tricky if demand is low. It suits those who prefer a more “buy and hold” style.
Particulars | Open-Ended Mutual Funds | Closed-Ended Mutual Funds |
Meaning | Continuously offers new units for subscription | New units only offered during the NFO period |
Liquidity | High liquidity | Limited liquidity, can be sold on stock exchanges |
Purchase/Sale of Units | Can buy/sell on any business day | Purchase during NFO, sell on exchanges or redeem at maturity |
Investment Mode | Lump sum or SIP | Only lump sum investment |
Maturity Period | No fixed maturity period | Predetermined maturity period |
Mode of Trading | Directly through the AMC | Traded on stock exchanges |
No. of Unit Holders | Varies based on subscriptions | Fixed unless sold on exchanges |
Take a large-cap equity mutual fund in India. You buy units on a Monday — you get Monday’s NAV (based on cut-off time). Redeem a week later? You get that day’s NAV, with proceeds hitting your bank in a few days.
Internationally, the Invesco QQQ ETF is often used as an example. It tracks big tech companies like Apple, Google, and Microsoft. You can buy and sell units daily at NAV, which makes it behave just like an open-ended fund should — flexible and accessible.
Closed-ended funds are a bit rarer in everyday conversation. The BlackRock ESG Capital Allocation Term Trust (ECAT), for instance, issued a fixed number of shares during its IPO. Once done, no more units are created.
If you want to buy or exit later, it’s only possible through the stock exchange. You can’t ask the fund to redeem them directly. Prices may trade at a premium or discount to NAV, depending on demand, which makes them a little unpredictable compared to open-ended ones.
High liquidity; redeem or invest any business day.
Flexible modes like SIPs or lump sum.
Transparent daily NAV pricing.
Allows diversification and rupee cost averaging.
Fund size keeps fluctuating with inflows/outflows.
Market volatility affects short-term returns.
Some funds may charge entry/exit loads.
Requires regular monitoring.
Fixed structure provides stability.
No inflow/outflow pressures on fund manager.
Suitable for medium-to-long-term allocations.
Can sometimes trade at attractive discounts.
Limited liquidity; can’t redeem with AMC.
Prices depend on market demand, not just NAV.
No SIPs or fresh investments after NFO.
Fixed maturity may not match personal timelines.
Open-ended funds suit investors seeking flexibility, easy entry and exit, and ongoing opportunities to adjust investments with changing goals.
Closed-ended funds appeal to investors preferring structured plans, stability, fixed durations, and who are comfortable with limited liquidity access.
SIPs naturally align with open-ended funds, offering gradual investments, while closed-ended funds often demand lump-sum commitments upfront.
Always match your choice with financial goals, personal risk tolerance, and preference between liquidity flexibility or predictable structured returns.
At the end of the day, neither is “better” — they just serve different purposes. Open ended funds offer liquidity and flexibility, while closed ended funds bring discipline and structure. The choice really comes down to how you view time, money, and access.
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Open-ended funds do not trade stocks on the market like stocks or ETFs. Instead, when you invest in an open-ended fund, you buy shares directly from the fund, and the fund buys stocks and other assets on your behalf. The price of the fund’s shares is based on its Net Asset Value (NAV), which is calculated daily.
Closed-ended mutual funds come in various types, including equity funds, bond funds, and hybrid funds. They invest in a mix of stocks, bonds, or both, and can also focus on specific sectors or investment strategies like leveraged or tax-exempt funds. These funds issue a fixed number of shares, and they are traded on stock exchanges.
Closed-end funds are called so because, unlike open-ended funds, they do not accept new investments once the initial offering is closed. They have a fixed number of shares, and these shares are traded on the stock market, similar to stocks.
Yes, Systematic Investment Plans (SIPs) can be done in open-ended funds. SIPs allow investors to invest a fixed amount regularly in the fund, providing flexibility and making it easier for investors to start with small amounts.
In open-ended funds, returns are generated from the investments made in stocks, bonds, or other assets within the fund. These returns are reflected in the fund’s NAV. In closed-ended funds, returns are generated through similar investments, but because the number of shares is fixed, the fund may trade at a premium or discount to its NAV. Returns in both types of funds depend on the performance of the underlying assets.
When a closed-end fund reaches maturity, it is typically liquidated, and the proceeds are distributed to the shareholders. The maturity period varies based on the specific type of fund, and investors usually receive their invested amount plus any returns generated over time.
Yes, you can exit a closed-end fund before its maturity by selling your shares on the stock exchange. The price at which you sell will depend on the market demand and supply, which may be above or below the Net Asset Value (NAV) of the fund.
An open-ended mutual fund allows investors to subscribe and redeem units at any time without restrictions. In contrast, a closed-ended mutual fund is open for subscription only during the launch period (NFO) and has a fixed maturity period, with units traded on stock exchanges thereafter.
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