Open ended mutual funds Scheme in India

Open ended mutual funds Scheme in India

Open-ended funds are those mutual fund schemes that collect money from a large number of investors who are willing to invest, thereby issuing an unlimited number of shares or units as the investment in the fund continues to grow.
Here, investors have the ability to directly invest or exit the scheme as per wishes.

Open ended mutual funds Scheme in India

Open-ended funds are available on an ongoing basis without any fixed maturity period.

These funds provide easy access in terms of liquidity. Trading of open-ended funds takes place any time after the closure of a new fund offer (NFO). Units of open-ended funds can be bought or sold at their Net Asset Value (NAV), which is updated daily.
A fund’s NAV is based on the updated value or prices of the underlying securities in the fund’s portfolio.

Advantages of Open-Ended Funds Scheme

There are many advantages of open-ended funds some of which are mentioned below:

1. Liquidity

Open-ended funds offer high levels of liquidity as there are no restrictions on withdrawals. Investors desirous of redeeming the fund units can do so by the time of reduction in the latest Net Asset Value (NAV) of the Reduction or NAV.

2. Access to Track Records

Open-ended funds provide access to track the performance of funds in the markets over the years, which can help investors be more informative and make better investment decisions.

3. Organize options available

Open-ended funds provide systematic plans for use by investors for making decisions regarding investments and withdrawals. Investors in open-ended funds can make use of SIPs, SWPs, and STPs, which reflect a systematic approach to investing, withdrawing, and making transfers.

4. Diversified Portfolio

Open-ended funds invest in a wide variety of assets and have a diversified portfolio of securities, which facilitates mitigating the risks associated with the investment.

5. Low Investment Required

Open-ended funds require minimal investment and thus make them accessible to all types of investors to invest. Some open-ended funds invested with as little as Rs 100.

Disadvantages of open-ended funds Scheme

Open-ended funds also have some disadvantages, let’s have a look at them:

1. Subject to market risks

When open-ended funds have diversified portfolios that are managed by fund managers, these funds are still subject to market risks. 

The Net Asset Value (NAV) of these funds experiences volatility and volatility as per the performance of the market.

2. Exit Load

Open-ended funds include exit loads which are charges levied by the investors in case they exit the fund. The charges are predetermined and are based on the tenure of the investment.

3. Maintenance of Cash Reserve

For the redemption requirements of investors, open-ended funds are required to maintain cash reserves. Therefore, they do not invest completely at a given point in time.

4. NAV is updated once a day

The NAV of Mutual Fund schemes is updated a day after the close of the trading day

5. Encashment

Encashment can prove to be a negative factor in such a way that it can harm the disciplinary approach of holding the investment for the long term. Since investors may be inclined to exit their positions in a falling market scenario at lower rates, that could hurt returns.

Who should invest in open-ended funds?

Investors who wish to invest in liquid instruments that do not impose any restrictions on withdrawals can invest in open-ended funds.
Also, depending on their risk appetite, financial goals, and investment tenure, they can choose from a wide variety of open-ended funds suitable for their needs.

Difference between open-ended funds and closed-ended funds

1. Investing through Systematic Investment Plans (SIP)

Open-ended funds allow investors to invest through Systematic Investment Plans (SIPs). On the other hand, close-ended funds do not allow this facility as the investments are limited only to a predetermined tenure of the NFO.

2. Supporting Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP)

Open-ended funds support Systematic Withdrawal Plans (SWPs), Systematic Transfer Plans (STPs), but closed-ended funds do not.

3. Duration

Open-ended funds have no fixed tenure to invest or exit the fund, whereas closed-ended funds have a fixed tenure.

Best Open-ended Funds in India

Some of the best open-ended funds across various mutual fund categories include the following funds:    

FAQ/Frequently Asked Question

1. What is the entry and exit period of open-ended funds?

In open-ended funds no fixed tenure to invest and exit the fund.

2. Are open-ended funds a type of mutual fund?

Yes, It is a mutual fund scheme.

3. When can open-ended funds be redeemed?

Open-ended funds can be redeemed by the investors at any time

4. Do open-ended funds provide liquidity?

Yes, open-ended funds offer a high level of liquidity.

5. Are open-ended funds subject to market risks?

Yes, open-ended funds are subject to market risks, even though they typically have a highly diversified portfolio managed by professional fund managers.

6. What are exit loads?

Open-ended funds include exit load, which is a penalty paid to the investor in case the units are redistributed before a pre-determined period.

7. Do open-ended funds provide access to track fund records?

Yes, open-ended funds provide access to track the fund’s performance, thereby helping investors make more informed decisions.

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