What are Close Ended Mutual Fund?

Published on March 12, 2026 | 3 min read

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Close-ended mutual funds are quite interesting, due to their unique features of lock-in and fixed maturity period. Unlike open-ended funds that offer flexibility, a closed-ended allow investors to invest only during the NFO period.

Knowing how they function and what makes them unique can help you to decide whether they suit your investment goals or not. In this article, you will get to know how closed-ended funds work, their features, and benefits.

Key Takeaways

Close-ended mutual funds come with a fixed maturity and lock-in period.
You can invest in these funds only during the NFO period.
After the NFO closes, units are listed on the stock exchange through the IPO process.
Investors can buy and sell units from the stock market but not directly from the fund houses.

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Understanding Close-ended Mutual Funds

Close-end mutual funds are those funds in which you can invest only during the New Fund Offer (NFO) period. These funds have fixed maturity dates and come with a lock-in period.

Once the NFO is launched, fund houses issue a fixed number of units, and after that, buying and selling of units is not allowed by the fund houses.

After NFO closes, these funds are listed on the stock exchange and traded similarly to stocks. You can buy or sell the closed-ended mutual fund units only through the stock exchange.

How do close-ended funds work?

Below is the step-by-step process mentioned to clarify how close-ended funds work:

An Asset Management Company (AMC) launches a close-end mutual fund scheme via NFO.
The NFO period typically remains open for 15 to 30 days.
At the time of investing, the lock-in and maturity dates are disclosed.
Investors can participate in NFO and purchase units of closed-ended funds.
After the NFO closes, the fund size becomes fixed, and fresh subscriptions are not allowed.
These funds begin with an IPO, after which units are listed on the stock exchange and available for trading.
At the time of maturity, ranging from 3 to 7 years, you receive your investment amount back based on the current NAV.

Key Features of Close-ended Funds

Here are the key features of close-end mutual funds

Limited-time offer

The subscription to close-ended funds is allowed only during the NFO period.

Lock-in

These funds have a fixed maturity and lock-in period.

Restrictions on inflows or redemption

Once the NFO is closed, you are restricted from investing more or redeeming.

Units listed on the Stock Exchange

Units of the closed-ended funds are listed on the stock exchange. Investors can buy or sell secondary units from the market.

How to evaluate closed-ended funds before investing?

Closed-ended funds do not offer the flexibility to buy and sell the units after the NFO closes. That’s why it’s important to evaluate the closed-ended funds before investing. Below are a few factors to consider:

Track Record of Fund Manager

Research the past performance of the fund manager and their experience.

Investment Strategy

Understand the fund's objective, whether it is growth-focused or income-oriented. Knowing the approach helps to align it with your own goals.

Risk Profile

Equity-based closed-ended funds can carry high risk as compared to debt-based closed-ended funds.

Past Performance

Check the past performance of similar types of funds launched by the same fund house.

Who should invest in a close-ended fund?

Close-ended funds might not be suitable for everyone due to various restrictions. But they can be a good fit for the following investors.

Seasoned Investors looking to diversify

If you already have open-ended funds or SIP, and are looking to explore more options to diversify.

Goal-based Investors

If you’re saving for a specific goal that needs to be achieved in 5 to 7 years. A fixed maturity can help you to save in a disciplined way.

Investors who don’t want to monitor daily

There is no option to redeem, so you’re less impacted by the daily market fluctuations.

Benefits of Investing in Close-ended Funds

Close-ended funds provide various benefits to the investors. Below is the list of key benefits:

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.

Close-end funds can be a useful option for investors who are comfortable with a lock-in period and fixed maturity.

After NFO closes, these funds don’t allow buying and selling. It helps fund managers to deploy long-term investment strategies and generate higher returns.

However, investors should always check the fund's objective, tenure and past performance before investing.

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.

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Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.