What Are Open-Ended Mutual Funds and How To Invest in India?

An open-ended mutual fund is one of the simplest ways to invest your money. Unlike fixed-term options, these funds don’t come with a maturity date. You can buy or sell mutual fund units whenever you want, and the price is decided by the latest NAV of the mutual fund, which changes every day based on the market.

In simpler terms, an open-ended mutual fund is a fund that stays open all year for investors. When you invest, you get units; when you redeem, your balance of units in mutual funds goes down. Examples include large-cap equity funds, debt funds, and hybrid funds.

The key difference between open and closed-ended mutual funds is flexibility. While closed-ended funds lock your money for a fixed period, open-ended funds give you the freedom to enter or exit at any time. Even ETFs are open-ended funds in structure, though they are bought and sold on the stock exchanges.

The real benefits of open-ended mutual funds are their liquidity and variety, making them a practical choice for both new and experienced investors.

An open-ended mutual fund comes with features that make it one of the most flexible investment options in India. Let’s understand the key features of these funds:

1. Liquidity

One of the  biggest advantages of an open-ended fund is liquidity. Investors can redeem their mutual fund units anytime, and the amount received is based on the latest NAV of the mutual fund declared that day. When you withdraw, your balance units in the mutual fund get reduced accordingly.

2. NAV-based pricing

Both allotment and redemption of units are done at the NAV of open-ended mutual funds. Since the NAV is updated daily, investors always buy or sell at the current market value.

3. No lock-in period 

In most cases, open-ended schemes have no lock-in period. The only exception is Equity Linked Savings Schemes (ELSS), which come with a 3-year lock-in but also offer tax benefits.

4. Systematic options available

An open-ended fund allows you to invest or withdraw systematically. You can set up an SIP (Systematic Investment Plan), SWP (Systematic Withdrawal Plan), or STP (Systematic Transfer Plan), depending on your financial goals.

5. Portfolio transparency

Asset Management Companies (AMCs) provide monthly disclosures of the portfolio, so investors can clearly see wh

Now, let’s understand the benefits of open-ended mutual funds:

1. High Liquidity

With an open-ended fund, you can access your money whenever you need it. Redeeming mutual fund units is simple, and the amount is calculated using the latest NAV of the mutual fund. Your balance units in the mutual fund are then reduced as per the redemption.

2. Flexibility

Open-ended funds let you invest in a way that suits your needs. Whether you prefer a one-time lumpsum or regular contributions through SIPs, both options are available.

3. Diversification

One of the biggest benefits of open-ended mutual funds is diversification. They spread investments across equity, debt, or hybrid portfolios, reducing the impact of risk from a single asset class.

4. Professional Management

Your money is managed by skilled fund managers who track markets and adjust the portfolio as needed. This gives investors the advantage of expert decision-making without needing to manage everything themselves.

5. Suitable for Long-Term Goals

Be it retirement planning, a child’s education, or long term wealth creation, an open-ended mutual fund aligns well with long-term goals. Investors can stay invested as long as they want, unlike closed-ended schemes that have a fixed maturity.

While the benefits of open-ended mutual funds make them attractive, it’s equally important to understand the risks before investing. Knowing these will help you decide wisely if an open-ended mutual fund suits your goals.

1. Market risk

The biggest risk comes from market fluctuations. Since the NAV of open-ended mutual funds changes daily, the value of your mutual fund units can rise or fall depending on market conditions. If the market underperforms, the latest NAV of mutual funds may be lower than your purchase price.

2. Emotional bias

Because an open-ended fund allows easy entry and exit, some investors may act on emotions, buying when markets rise and selling in panic during falls. This impulsive behaviour can reduce potential long-term returns.

3. Fund management risk

The performance of an open-ended scheme depends largely on how the fund manager allocates assets and manages risk. If the chosen strategy doesn’t perform well, your balance units in the mutual fund may not generate the expected returns.

• An open-ended mutual fund allows investors to buy or sell mutual fund units anytime, unlike closed-ended funds with fixed maturity.
• The value of units is based on the NAV of open-ended mutual funds, with the latest NAV of mutual funds declared daily.
• When you redeem, your balance units in the mutual fund reduce by the amount withdrawn.
• Key benefits of open-ended mutual funds include liquidity, flexibility (SIP or lumpsum), diversification, professional management, and suitability for long-term goals.
• Risks include daily market fluctuations in NAV, emotional decision-making due to easy entry/exit, and dependence on the fund manager’s strategy.
• When comparing open and closed-ended mutual funds, open-ended funds offer more flexibility, while closed-ended funds restrict redemption until maturity.
• Even though ETFs are open-ended funds, they differ as they are traded on the stock exchanges, unlike traditional open-ended schemes.