InvestorQ : What is the difference between close-ended & open-ended mutual funds?
Tanya Mehta made post

What is the difference between close-ended & open-ended mutual funds?

Roshni Hegde answered.
3 years ago
As mutual fund as a topic of investment is not much familiar with investor like those of traditional instruments. Generally, after learning the concept of open-ended and close-ended mutual funds, the query regarding its difference tends to arise. Let me tell you the primary difference is between how each fund is organized and the way its traded by the investors. However, apart from these, there are major differences in the investments which you will find in this answer.

Close-ended mutual funds do not allow investors to invest via a systematic investment plan (SIP) mode with the view of the limited period of investment. A Systematic Investment Plan is a mode of investment in mutual funds where investors are allowed to invest small amounts periodically instead of lump sums. Open-ended mutual funds allow both lump sum and SIP mode of investment.
Also, here investors cannot choose the option of Systematic Withdrawal Plans (SWPs) and Systematic Transfer Plans (STPs). This is due to the limited redemption period in it.
Close-ended mutual funds are also known for its illiquidity in nature.

If you are using Open-ended schemes you can issue and redeem units during the scheme is active. In close-ended schemes, the investment is locked for a specific period. Investors must know that the number of units of an open-ended scheme can fluctuate on a daily basis, whereas due to nature close-ended fund doesn't show such sign.

Further, If you are looking to join open-ended schemes, you can directly apply to the mutual fund. You can also buy units of the close-ended mutual fund but from the secondary market only.
In terms of returns, I have observed close-ended funds results well. Whereas, If compared, I find open-ended mutual fund is a better and safer choice than a close-ended mutual fund.

The similarities between them are the common management style. They both require to be professionally managed. These both types of the fund can be invested for longer period.

To put it in a nutshell, closed-end funds and open-end funds have significant differences in the structure, pricing, and sales. The close-ended fund has a fixed number of shares that is allotted by an investment company through an initial public offering.