Open Ended Funds
Open ended funds are among the most popular investment options for retail and institutional investors. They offer flexibility, liquidity and professional fund management, making them a preferred choice for people who want easy entry and exit in the market. Understanding how these funds work can help you make more confident and informed investment decisions.
This guide breaks down the meaning of open ended funds, their features, benefits and things to know before investing. The explanation is written in a simple and conversational tone so anyone can grasp the concept quickly.
What are Open Ended Funds?
Open ended funds are mutual funds that allow investors to buy and sell units at any time. There is no fixed maturity period and the fund remains open for transactions on all business days. The price of each unit is based on the Net Asset Value or NAV, which changes daily based on market movements.
Because new units can be created and existing units can be redeemed anytime, open ended funds offer high liquidity and flexibility.
Key Features of Open Ended Funds
1. Easy Entry and Exit
Investors can invest or withdraw whenever they want. There is no lock-in unless the fund category demands it, such as ELSS.
2. NAV-Based Pricing
Units are bought and sold at the fund’s NAV. Since NAV changes daily, returns are linked to market performance.
3. No Fixed Maturity
Unlike closed ended funds, open ended funds stay active indefinitely. The fund continues to take new investments and redeem old ones.
4. Wide Range of Options
Open ended funds include equity funds, debt funds, hybrid funds, liquid funds and more. Investors can choose based on their goals and risk levels.
5. Professional Management
A fund manager handles buying and selling decisions, helping investors benefit from expert insights without doing the research themselves.
How Do Open Ended Funds Work?
When you invest, the fund issues new units to you based on the current NAV. When you redeem, the fund buys back your units at the NAV.
This continuous process of issuing and redeeming units keeps the fund liquid and dynamic.
For example, if an equity fund has an NAV of ₹25 and you invest ₹50,000, you receive 2,000 units. If the NAV grows to ₹30 later, your value becomes ₹60,000.
Benefits of Investing in Open Ended Funds
1. High Liquidity
Open ended funds allow redemption whenever you need money. This flexibility is valuable for short-term and long-term investors.
2. Suitable for SIP and SWP
Since these funds stay open continuously, they support systematic investment plans and systematic withdrawal plans.
3. Diversification
These funds invest across sectors, asset classes and companies, reducing the impact of volatility.
4. Transparency
NAV, portfolio holdings and risk indicators are regularly disclosed, helping investors make better decisions.
Things to Consider Before Investing
1. Market Risk
Returns depend on market performance, especially for equity-oriented open ended funds.
2. Costs
There may be expense ratios or exit loads depending on the fund. Check these before investing.
3. Fund Objective
Choose a fund aligned with your investment horizon and risk appetite.
Conclusion
Open ended funds offer flexibility, accessibility and professional management, making them ideal for investors who want long-term wealth creation with easy liquidity. Whether you are building a retirement plan, investing for your child or looking for systematic growth, open ended funds can be a reliable part of your portfolio.
FAQs About Open Ended Funds
1. Are open ended funds safe?
They are regulated by SEBI, but safety depends on the type of fund. Debt funds are relatively stable while equity funds carry higher risk.
2. How quickly can I redeem my money?
Most open ended funds allow redemption within one to three working days. Liquid funds may offer faster processing.
3. Can I start investing with a small amount?
Yes, many funds let you start with ₹500 through SIP.
4. What is the difference between open ended and closed ended funds?
Open ended funds allow continuous buying and selling while closed ended funds have a fixed maturity and limited subscription window.
5. Do open ended funds have lock-in periods?
Most do not, except categories like ELSS which have a three-year lock-in.
