Difference Between Open Ended and Close Ended Mutual Funds

Published on March 12, 2026 | 4 min read

When investing in mutual funds, we often assume all funds operate similarly and offer the option to invest or redeem units at any time. However, the reality is different.

If you invest in an open-ended fund, you get the flexibility to invest anytime, via lump sum or a Systematic Investment Plan (SIP). On the other hand, if you invest in a closed-ended fund, it is restricted solely within the New Fund Offer (NFO) period and does not allow investment through SIPs.

The choice between open-ended and close-ended mutual funds can be difficult if you are new to mutual fund investing. This article will guide you through the meaning, differences, advantages and disadvantages of both types of funds.

Key Takeaways

Open-ended mutual funds allow buying and selling on business days, whereas close-ended mutual funds allow a one-time investment during the new fund offer (NFO) period.
Open-ended funds give options for SIP and lump sum investment, whereas closed-ended funds only allow lump sum investment.
Open-ended funds do not have a fixed maturity period, whereas closed-ended funds have a fixed maturity and come with a lock-in period.

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What are open-ended mutual funds?

Open-ended mutual funds are a type of mutual fund that allows you to buy and sell units anytime at the current Net Asset Value (NAV). These funds do not have any fixed maturity or lock-in periods. Due to this, any investor can enter or exit the fund as per their convenience, making it an ideal choice for those seeking flexibility while investing.

The units can be bought and sold through an asset management company (AMC) website or through a trusted SEBI-registered distributor like Upstox.

Key Features of Open-ended Mutual Funds

Below are the key features of open-ended mutual funds:

High Liquidity

Investors can buy or redeem units on any business day.

No Fixed Maturity

These funds do not have any fixed maturity period or lock-in.

Daily NAV Pricing

The unit value is calculated based on the closing price of the underlying securities.

Flexible Investment Amount

These funds allow investment through a lump sum or SIP mode.

What are close-ended mutual funds?

A close-ended mutual fund is a type of fund in which you can only invest during the NFO period. The NFO period is a period when the particular mutual fund scheme is launched for the first time by the asset management company.

Once the scheme is launched, the fund houses issue a fixed number of units, and after that, no new entries or exits are allowed until the scheme matures.

After the NFO ends, units get listed on the stock exchange, and investors can buy and sell them like any other stock based on demand and supply.

Key Features of Close-ended Mutual Funds

Below are key features of the close-end mutual funds:

Lock-in Period

These funds have a lock-in period, which means you can’t redeem units until the maturity date.

No SIPs

Systematic investment is only allowed in open-ended funds.

Limited investment window

You can only invest at the time of NFO.

No Averaging Opportunities

You can’t invest more money to average the cost of buying.

Difference Between Open-ended and Close-ended Mutual Funds

Below is the comparison table between open-ended and close-ended funds.

Particulars	Open-ended funds	Close-ended funds
Meaning	It offers new units for subscription on a timely basis.	It only offers new units for subscription during the NFO period.
Liquidity	High liquidity	Limited liquidity
Units - purchase and sale	Purchase and sale of units can be possible on any business day	Purchase happens during the new fund offer, while units can be sold on the stock exchange or redeemed at maturity
Mode of investment	SIP or lump sum	A lump sum investment only possible
Maturity period	No specific maturity	Predetermined maturity period
Mode of trading	Through a mutual fund house or distributor	Available for trading on the stock exchange
Number of unit holders	Unlimited	The number of unit holders is fixed

Advantages of Open-ended Mutual Funds

Open-ended funds provide various advantages to the investors. Below is the list of key advantages:

Highly Liquid

Open-ended funds are liquid; you can buy or sell units on any business day.

Buy/sell

You can place a purchase or redeem order at the current NAV.

Historical Performance

Historical performance is visible, so comparison between other open-ended funds is possible.

SIP

SIP investment mode is available in open-ended funds, which helps in averaging the cost of buying.

Diversification

Portfolio diversification is possible with open-ended funds.

Disadvantages of Open-ended Mutual Funds

Before you invest money in open-ended funds, it’s important to understand the disadvantages.

Volatility

NAV fluctuate daily based on market conditions.

Cash Flow Risk

Fund managers maintain a cash reserve to tackle redemptions. However, large-scale redemption may force managers to sell holdings at unfavourable prices.

Fees

Expense ratios and exit loads may impact the overall portfolio returns.

Advantages of Closed-Ended Mutual Funds

Closed-ended funds provide unique advantages to the investors. Below is the list of key advantages:

Disciplined Investing

A one-time investment during the NFO period brings discipline in investing. It prevents you from prematurely exiting the funds and staying invested for the long term.

Low Volatility

Due to the absence of daily buy and sell, the NAV of these funds are less volatile.

Market Price Flexibility

These funds are listed on the stock exchange, and units can be bought and sold easily. This creates a possibility of purchasing an asset at a discount to its NAV or selling at a premium during high demand

Disadvantages of Close-ended Mutual Funds

Before you invest money in close-ended funds, it’s important to understand the disadvantages to take informed decisions:

Low Liquidity

Liquidity can be low in closed-ended funds.

Lock-in period

You cannot redeem the units directly from the mutual fund house due to the lock-in period.

SIP not allowed

You cannot start a SIP in closed-ended funds; only a lump sum investment is allowed.

Choosing between open-ended and close-ended mutual funds depends on your investment goals. Open-ended funds are suitable for investors looking for flexibility, liquidity and the ability to make quick adjustments.

On the other hand, closed-ended mutual funds are suitable for investors with a long-term horizon and are comfortable with a fixed maturity period.

About Author

Subhasish Mandal

Sub-Editor

Finance professional with strong expertise in stock market and personal finance writing, he excels at breaking down complex financial concepts into simple, actionable insights. Holding a Master’s degree in Commerce, he combines academic depth with practical knowledge of technical analysis and derivatives.