What are Open Ended Mutual Funds?
Introduction
Open-ended mutual funds are among the most commonly used investment options in India’s mutual fund landscape. These funds allow investors to buy and sell units at any time based on the current Net Asset Value (NAV), giving flexibility and access to money when needed. Unlike closed-ended mutual funds that restrict buying to a New Fund Offer (NFO) and may trade on stock exchanges, open-ended funds continuously issue and redeem units directly from the fund house. Interval funds add another structure where buying and selling is allowed only at specific intervals rather than daily. Open-ended mutual funds suit a wide range of objectives from wealth creation to income planning and let investors participate through one-time investments or SIPs. This guide explains what open-ended funds are, how they differ from other structures, and why they matter for mutual fund investors.
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What Are Open-Ended Mutual Funds?
An open-ended mutual fund is a mutual fund type that allows investors to buy (invest) or sell (redeem) units at any time at the current Net Asset Value (NAV). They do not have a fixed maturity date or limit on the number of units they can issue. Unlike closed-ended funds, which issue a fixed number of units only during a limited initial offer, open-ended funds continuously create and redeem units based on investor demand.
In India, most mutual funds you encounter be they equity, debt, hybrid, or index funds are open-ended, meaning investors can transact any working day at the prevailing NAV.
How Open-Ended Mutual Funds Work
Here’s a simplified way to understand how they operate:
- Investors submit buy or sell requests any business day.
- The mutual fund issues new units when you invest and redeems units when you exit.
- The NAV is calculated daily based on the value of the portfolio’s underlying securities.
- There is no fixed end date you decide how long to remain invested.
Because units are created or redeemed based on demand, the size of an open-ended fund expands or contracts with investor activity.
Key Features of Open-Ended Mutual Funds
Feature
Description
Liquidity
Investors can buy or redeem units on any business day at NAV.
No Fixed Maturity
There is no predetermined end date for the fund.
Unlimited Units
The fund continuously issues/repurchases units.
Daily NAV Pricing
Unit price (NAV) updates daily based on portfolio value.
Buy Through SIP or Lump Sum
Offers flexibility to invest via SIP or one-time amounts.
Advantages of Open-Ended Mutual Funds
Liquidity and Flexibility: You can redeem your units when needed (subject to exit loads if any).
Diversification: Your investment is spread across a mix of assets within the fund.
Professional Management: Fund managers handle investment decisions.
Ease of Investing: You can start with a lump sum or set up regular SIPs.
Open-ended funds are suitable for both short-term liquidity needs and long-term financial goals like retirement, children’s education, or systematic wealth creation.
How They Compare: Open-Ended vs Closed-Ended vs Interval Funds
Below is a comparison to help you understand these three mutual fund structures:
Feature
Open-Ended Funds
Closed-Ended Funds
Interval Funds
Buy/Sell Frequency
Any business day at NAV.
Only during NFO; later tradable on exchanges.
Buy/Sell only at specific intervals set by the fund house.
Liquidity
High, very liquid.
Limited depends on exchange trading.
Limited only in defined windows.
Units Issued
Unlimited expands/contracts with demand.
Fixed after NFO no new issues after that.
Maybe limited operations like closed-ended outside intervals.
NAV Pricing
Daily NAV used for transactions.
Units trade at market price (can differ from NAV).
NAV applies only during interval transactions.
Flexibility
Highly flexible.
Less flexible lock-in or limited trading.
Moderate flexibility only during windows.
Open-ended funds are the most flexible and liquid among the three, closed-ended funds offer fixed capital discipline and may trade on exchanges, while interval funds allow transactions only during predetermined intervals, combining elements of both.
How to Invest in Open-Ended Mutual Funds
Investing is straightforward:
- Complete KYC (Know Your Customer) identity and address verification.
- Choose Open-Ended Funds based on goals and risk tolerance.
- Select Investment Type lump sum or SIP.
- Place Order invest at current NAV on a business day.
- Monitor track NAVand performance periodically.
You can invest directly through the AMC’s website, the Motilal Oswal platform, or third-party apps and brokers that support mutual fund transactions.
Who Should Consider Open-Ended Mutual Funds
Open-ended mutual funds are suitable for:
- Investors who want easy entry and exit with flexibility.
- Those who want to invest through SIPs or one-time investments.
- Individuals seeking diversification and professional management.
- Anyone planning for short-term and long-term goals with liquidity options.
Conclusion
Open-ended mutual funds are among the most popular investment options because they combine flexibility, liquidity, and professional management. You can buy or redeem units at any time on business days based on the daily NAV. Unlike closed-ended funds that have limited entry periods and trade on exchanges, and interval funds that restrict transactions to predetermined windows, open-ended funds offer continuous access. Whether you want to invest through SIPs or a one-time amount, open-ended funds provide a convenient way to participate in diversified investment strategies suited to both short-term needs and long-term financial goals.