An open-end fund is one that has units available for sale and repurchase at all time – from the fund itself. An investor can buy or redeem units from the fund itself at a price based on the Net Asset Value (NAV) per unit. This is like making a fixed deposit with the bank. If you want to make a deposit , you go to the bank with a cheque. If you want money, you go with the fixed deposit, correct?
Similarly, if you have money and wan to buy Open-ended units, you take a cheque to the MUTUAL FUND HOUSE. If you want a redemption you go with the units to the fund house and they give you money. Clearly Open ended funds are liquid only with the issuing fund house.
A close ended fund makes a one-time sale of a finite number of units. The fund house just issues the units ONCE – after that liquidity is provided by listing it on a stock exchange.
Today all schemes are made to look like Close ended mutual funds – however all of todays’ schemes are neither full open ended or fully close ended!
Funds do offer “buy-back of funds/units” thus offering another avenue for liquidity to closed-end fund investor.
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