Open Ended Mutual Funds are those funds under which the investor enjoys the freedom to purchase or redeem his MF units any time on any business day at the NAV of that particular scheme. Unlike closed-end schemes, where an investor can join and withdraw from the scheme for a certain period of time, the investor in open-end schemes can withdraw anytime. This is one of the main reasons why these funds are very popular among Indian investors. The assets under management in the mutual fund industry in India, according to AMFI, till June 30, 2026, are ₹82.22 lakh crore, out of which the majority are open-end equity, debt, and hybrid schemes.
How Do Open-Ended Mutual Funds Work?
In an open-end mutual fund, the fund collects money from many individuals and then invests this collected money into stocks, fixed income securities or any other form of security according to the objective of the scheme. The NAV of the mutual fund is calculated on a daily basis by the mutual fund company, and it is the NAV which calculates the unit price.
Continuous Buying and Selling
There's no fixed number of units on offer. New units get created when someone invests, and units get cancelled when someone redeems. This keeps the fund size flexible and responsive to investor demand.
Daily NAV Calculation
The NAV reflects the market value of the fund's holdings minus its liabilities, divided by the total number of outstanding units. It changes daily with market movements.
No Fixed Maturity Date
You can stay invested for as long as you wish, whether that's a few months or several decades, since there's no lock-in beyond what specific categories (like ELSS) require.
Types of Open-Ended Mutual Funds
Open-ended schemes come in several forms, each suited to different goals and risk appetites.
Equity Funds
These invest mainly in shares and suit investors seeking long-term growth, with a higher tolerance for market swings.
Debt Funds
Debt schemes invest money into bonds, government securities and money market instruments, aiming for steady returns.
Hybrid Funds
Hybrid funds combine equity and debt in varying proportions, balancing growth with stability.
Solution-Oriented Funds
These are designed around specific goals, such as retirement or a child's education, and often come with a minimum holding period.
Index Funds and ETFs
Index funds and ETFs both track market indices such as the Nifty 50 or Sensex, making them passive investments options. However, index funds are purchased and redeemed through the AMC, while ETFs are traded on stock exchanges throughout the trading day.
Advantages of Open Ended Mutual Funds
The benefits of open ended mutual funds include:
Liquidity
The units can be withdrawn on any working day.
Flexibility
One can opt to make investments in one lump sum or using Systematic Investment Plan (SIP).
Diversification
Using just one fund, the money is diversified in several stocks and bonds hence minimising losses due to poor performance of a single security.
Professional management
The fund managers perform all the required research and management of the securities.
Transparency
The NAVs and portfolios are updated daily and monthly respectively.
Wide variety of schemes
Schemes range from equity to hybrid and debt schemes catering for various objectives.
Risks of Open-Ended Mutual Funds
The key risks of open-ended mutual funds are as follows.
Market risk
Equity-oriented schemes can fall in value during market downturns, and returns are never guaranteed.
Interest rate risk
Debt funds can lose value when interest rates rise, since bond prices move in the opposite direction.
Liquidity mismatch
In rare cases, a fund may struggle to sell certain holdings quickly. This can affect portfolio management and, in exceptional circumstances, may impact the fund's ability to meet large redemption requests efficiently.
Concentration risk
Sector or thematic funds carry higher risk since they focus on a narrow part of the market.
Exit load and cost
Some schemes charge an exit load for redemptions made within a short period, along with an ongoing expense ratio that eats into returns.
Who Should Invest in Open Ended Mutual Funds?
The following investors may consider investing in open ended mutual funds.
First-time investors
Those starting their investment journey often prefer the flexibility of SIPs and the ability to start with small amounts.
Long-term wealth builders
Investors saving for retirement or a child's future can pick equity or hybrid schemes for growth over many years.
Conservative savers
Those who want steadier returns than equities, without locking money away for good, may lean towards debt funds.
Investors who value liquidity
Anyone who wants the option to withdraw funds without waiting for a maturity date will find open-ended schemes convenient.
How to Redeem an Open-Ended Mutual Fund
Here the process to redeem open ended mutual funds.
- Login to your mutual fund account through the fund house or registrar companies such as CAMS and KFintech or even an investment platform.
- Choose the plan and the number of units or amount of money you want to redeem.
- Confirm the exit load applicable, if any, depending on the holding period.
- Place the redemption request before the cut-off time (typically 3 PM for most of the plans) to receive the current day's NAV.
- The money will be credited into your designated bank account within one to three business days in case of equity and hybrid funds, and within the same day or the very next day in case of liquid funds.
Taxation of Open-Ended Mutual Funds
Tax treatment depends on the type of fund and the holding period before redemption.
Fund Type | Holding Period | Tax Rate |
Equity Funds | Up to 12 months (Short-term) | 20% |
Equity Funds | Over 12 months (Long-term) | 12.5% on gains above ₹1.25 lakh |
Debt Funds | Any holding period | Taxed as per your income slab |
Hybrid Funds (equity-oriented) | Same as equity funds | As per equity fund rules |
Hybrid Funds (debt-oriented) | Same as debt funds | As per debt fund rules |
Note: Tax rules can change with each Union Budget, so it's worth checking the latest provisions or speaking to a tax advisor before redeeming.
Conclusion
The open-ended mutual funds provide an investor with an easy avenue to earn wealth. You can invest or exit the investment according to your needs. It is suitable for various purposes ranging from saving to even retirement and various risk profiles such as equity, debt, and hybrids. In any investment that is market-linked, there are no guarantees on earnings, and it would be beneficial to align your fund selection to your risk profile and time frame. The scheme information document and past performance will help you make the right decision.
FAQs on Open-Ended Mutual Funds
Is there any option to redeem my open-ended mutual funds at any time?
Yes. You can redeem your units at any business day depending upon the NAV along with any possible exit loads for early redemption.
Is there any option to invest in open-ended mutual funds using SIP?
Yes. Mostly open-ended mutual funds allow SIP investments so that you can make fixed investments in regular intervals.
How is the NAV of the open-ended mutual funds determined?
This can be determined by determining the difference between the market value of the funds and its liabilities then dividing the result with the outstanding units at the end of each business day.
Who can invest in the open-ended mutual funds?
Anyone from beginner to expert investor can use open-ended mutual funds because of the flexibility they offer.
Are open-ended mutual funds risky?
Risk depends upon the type of open-ended mutual fund. If you are going to invest in the equity scheme of open-ended mutual funds then there is more market risk and if it is debt funds then there is interest risk and no mutual fund scheme guarantees fixed returns.
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