An open-ended mutual fund allows you to enter and exit the fund anytime. It is the one where units are available for subscription or repurchase continuously, according to the Securities and Exchange Board of India (SEBI). This is done at Net Asset Value (NAV) daily. There are no limitations on the number of units they can issue. This investment structure is the most common form in India and does not have any maturities or lock-in period. They are not traded on stock exchanges. Now that you know what is open-ended funds, below are a few features that make them popular among investors. Having a clear idea beforehand will help you make an informed choice.
This is one of the key features of open-ended mutual funds. Investment and redemption are allowed at any time. It is done as per the NAV on the day of redeeming and ensures maximum liquidity. This is unlike close-ended funds where liquidity is available only after the lock-in period is over or at fund maturity. But ELSS, children’s funds or retirement funds usually come with a lock-in period of 3 years. So, know that these units cannot be liquified.
You can pick from SWPs, SIPs and systematic transfer plans. These are allowed for both withdrawal and investment purposes. You can invest a pre-specified amount in the scheme on a periodic basis. It helps to build a significant corpus right from the start. This is also quite helpful for salaried individuals who do not have a big investable amount.
A mutual fund manager takes care of your open-ended scheme by deploying several strategies. They are managed to a wide range of investment objectives and market segments. The transactions are also handled by an expert on your behalf. They make all kinds of efforts to absorb the market volatility and bear the risks most of the time. The managers are highly experienced and have the knowledge, patience and expertise to make an investment decision that works well in your favour.
Investing in ELSS, an open-ended mutual fund, is eligible for a tax rebate of up to ₹1.5 lakhs on the invested amount. So now you can save up to ₹46,800 per annum. But make sure the ELSS funds fall under the 30% tax bracket.
Past Performance Tracking
An open-ended fund offers track records across different market movements. This historical data helps investors make an informed choice. You can avoid repeating a few past mistakes and make an informed choice. Don’t forget to compare the financial ratios with mutual fund schemes of the same category and understand where you stand. It will help to create strategies to improve the market returns on your open-ended funds.
Now that you have a clearer idea of what is open-ended fund, know that this is ideal for investors who are looking for liquid investment options and have an appetite to take market risks and cash-flow risks for better and higher returns. It is also perfect for anyone who is looking for a short-term horizon. Try to meet the standard eligibility criteria set by SEBI to qualify for an open-ended fund.