Close ended mutual fund

Close ended mutual fund – in today’s topic, we will learn about close ended mutual fund, what is a close ended mutual fund? What are the special features of close ended mutual fund and what are the benefits of investing in close ended funds?

Any mutual fund is of two types according to its structure and maturity period-

1. Open ended mutual fund
2. Close ended mutual fund

Earlier we talked about open ended mutual funds, in this topic we will talk about close ended funds,

What is close ended mutual fund?

When the time limit for investing in a mutual fund and its total units are pre-decided in the new offer of the mutual fund, the mutual fund is called a close ended mutual fund.

Close ended mutual fund as the name suggests, the time limit for investment in such mutual funds is already fixed, and after that time limit, such mutual funds are closed for direct investment. ,

Generally when a company launch close ended mutual fund scheme, it takes money from investors only through nfo (new fund offer), in nfo as soon as all the units of mutual fund are bought by the investors, that mutual the fund closes for direct investment by any new investor,

In close ended mutual fund, there is a restriction on the mutual fund company to issue new units, and also invest in this mutual fund for a fixed period of time,

How closed ended mutual fund works?

1. Mutual fund company makes close ended fund scheme,
2. In close end fund, the already fixed amount is divided into unit price and is made unit.
3. Then, through new fund offer, investors are offered to buy units and invest in that close end fund,
4. And as soon as all the units are bought by the investors, the fund offer is closed.
5. And the close ended fund is invested by the mutual fund company keeping in mind the objective of the fund, and whatever profit it earns is distributed among the units,
6. In this way the nav of the close ended fund keeps on changing.

Key features of close ended mutual fund

Let us look at some of the features and highlights of close-ended funds –

1. There is a restriction on direct entry of new investors in close ended funds.
2. Units of close ended funds are issued only in the form of nfo.
3. Close ended fund also has a fixed pre-determined maturity time,
4. The number of units in close ended funds is fixed, and investors can buy them from the stock exchange in the hope of increasing their nav as per its performance.
5. In a close ended fund, the purchase and sale of its units is done at the market value of the mutual fund or its nav, and the mutual fund company makes this clear in advance,
6. Units of close ended fund are also available for trading on the stock exchange, and the investor can sell his unit to any other investor on the stock exchange as per the terms of the mutual fund,
7. If closed ended funds are bought from the stock market, then it can be sold back on the stock market itself, or the investor has to wait till its maturity is completed,
8. The company can also offer to the investor to buy or redeem the close ended fund on the buy back scheme before the maturity time,

Benefits of investing in close ended mutual fund

Let us now look at the advantages of investing in close ended mutual funds-

1. Trade on the stock exchange – the biggest advantage of investing in close ended mutual funds is that, due to the fixed number of units in the close ended fund, its trading becomes possible.
2. Option to sell at market price – due to the close ended mutual fund being traded in the stock market, the investor can sell his close ended mutual fund at the market price on the stock market,
3. Nav price and market price – nav weekly update can happen in close ended mutual funds, whereas due to trade in the market, the purchase and sale of close ended mutual funds also happens at the market price.

Close ended mutual fund –summary

1. Units of close ended fund are issued only through nfo (new fund offer).
2. Investors can invest in such mutual funds only at the time of new fund offer.
3. Close ended fund these units are for a fixed period. In this way, you invest money in it for a fixed time and cannot withdraw money from the close ended fund before this fixed time.
4. In this way, if you want to withdraw your money before the completion of the maturity period of the close-ended fund, then you can buy and sell the units of mutual funds listed in the stock exchange, just like stocks/shares.

Final words:

While investing in close ended funds, we should keep in mind that-

1. Lock in period – what are all the conditions of close ended fund, for how long the fund cannot be redeemed,
2. Redeem process – the second thing to keep in mind is that what is the procedure to redeem that mutual fund.
   And thus if the close ended fund meets your own investment requirements, then you can invest,
3. Friends, if you like the article, then do write your comment or question below.

Thank you for reading the article.

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Mutual Fund –  Guide Part 9