Investment is an important part of financial planning and wealth creation. In modern financial markets, mutual funds have become one of the most popular investment avenues because they provide professional management, diversification, and investment opportunities to small investors.
Mutual funds offer different types of investment schemes according to the needs and preferences of investors. One such important scheme is the close ended scheme. This scheme is suitable for investors who are willing to invest their money for a fixed period in order to earn returns.
Close ended schemes are designed to provide stability to fund managers because the amount invested remains fixed for a specified period.
A close ended scheme is a type of mutual fund scheme that has a fixed maturity period and a fixed amount of capital.
Under this scheme, investors can invest only during the initial offer period. After the offer period closes, new investments are generally not accepted.
Investors cannot redeem their units before maturity directly from the mutual fund company. However, units may be traded on stock exchanges if the scheme is listed.
A close ended scheme may be defined as:
“A mutual fund scheme that remains open for subscription only during a specified period and has a fixed maturity date.”
When a close ended scheme is launched, the mutual fund company invites applications from investors during the New Fund Offer (NFO) period.
After the subscription period ends, the scheme is closed for new investments.
The collected funds are invested in different securities such as shares, bonds, or other financial instruments according to the investment objectives of the scheme.
At the end of the maturity period, investors receive the value of their investment along with returns earned during the investment period.
| Basis | Close Ended Scheme | Open Ended Scheme |
|---|---|---|
| Investment Period | Fixed maturity period | No fixed maturity period |
| Subscription | Open only for limited period | Open throughout the year |
| Liquidity | Less liquidity | High liquidity |
| Capital Structure | Fixed capital | Variable capital |
| Redemption | Generally at maturity | Anytime through fund house |
Close ended schemes are suitable for investors who:
In a close ended scheme, funds are collected once, invested for a fixed period, and returned at maturity.
A close ended scheme is an important type of mutual fund investment that operates with fixed capital and a fixed maturity period. It allows fund managers to make stable long-term investment decisions and provides investors with professionally managed investment opportunities.
Although close ended schemes have lower liquidity compared to open ended schemes, they may provide good long-term returns and diversification benefits. Therefore, these schemes are suitable for investors who are willing to invest for a fixed period and seek long-term financial growth.