December 10, 2010 2:33 pm
What are open and close ended funds and how do they differ. Is it adviseable to invest in open ended .are there any criteria we should consider while investing ,do let me know your views on the same.
For comparison between the two, you can see this excellent article.
Open Ended MF: Investor can enter and exit anytime.
Close Ended MF: Generally, investor can enter during its NFO period and exit only after 3 years. If you exit before 3 years, you will have to pay HEAVY exit load which may range between 3% – 6%.
It’s better to avoid close ended funds as investor can easily exit from such schemes. Secondly, the fund manager does not get more money continuously to average AUM in fallen markets. E.g., Tata-Indo Global Infrastructure Close-ended Fund was launched before the BIG fall of 2008. No one could invest more when NAV falls sharply. And fund manager had no money to average his buy price when all other fund managers were buying at low levels. So, who suffers loss – the investor.
Summary, invest in open ended funds. You’ll always have liquidity and option to switch to other better performing funds.
Hope it will help you.
Amount invested in open ended funds can be liquidated at any time, however, in case of close ended funds, amount invested cannot be taken back during the tenure period mentioned for the close ended funds.
I am comfortable with open ended funds rather than close ended ones.
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