Open Ended Mutual Funds: Meaning & Key Benefits

According to the Association of Mutual Funds in India, the assets under management (AUM) of the Indian mutual funds industry increased from INR 27.12 trillion on July 31, 2020, to INR 75.36 trillion on July 31, 2025.

Despite its popularity, many investors want to access the mutual funds without waiting for maturity. If you are one of them, do not worry. This blog provides a solution to this problem by breaking down the concept of open-ended mutual funds.

What Do Open-Ended Mutual Funds Mean?

Open-ended MF is a type of mutual fund which allows you to buy or sell it at any time. The stock market does not allow you to trade open-ended fund units. Furthermore, these funds can issue an unlimited number of units. On any working day, investors can buy or redeem units from the fund house at the scheme’s current net asset value (NAV).

How Do Open-Ended Funds Operate?

Just like any other mutual fund, open-ended mutual funds pool funds from investors to invest in different types of securities, including stocks and bonds. The NAV is determined daily based on the underlying assets’ market value. However, investors can enter or exit from the fund as per their convenience, as there are no restrictions on withdrawal.

Benefits of Open-Ended Funds

The primary benefit of open-ended mutual funds is that they offer the flexibility to investors for entering and exiting the funds. Some other benefits of these funds are:

• Diversification

Since open-ended funds invest in a wide variety of assets, you can diversify your investment portfolio by investing in these funds.

• Professional Management of Funds

These funds are managed by professional fund managers, who make effective investment decisions for optimising higher returns.

• Performance Throughout Various Market Cycles

An open-ended fund allows you to buy or redeem units from the fund house. Therefore, you can have a look at the fund’s past performance and get insights into how it has performed across various market cycles.

• SIP Availability

You may also set up a systematic investment plan (SIP) and regularly invest a specific amount in open-ended funds. Salaried investors and those without an investment corpus will especially benefit from this.

Drawbacks of Open-Ended Funds

Although there are numerous benefits, open-ended mutual funds also have significant drawbacks. Some of them are:

• High Volatility

An open-ended mutual fund’s NAV varies based on how well its underlying securities perform. As a result, these funds are extremely volatile and vulnerable to market risks.

• Cash Flow Risks

Market and cash flow risk also affect open-ended funds. The NAV of these funds fluctuates daily in response to market fluctuations.

• Exit Load and Expense Ratio

Since these funds allow you to trade frequently, you have to pay the fees like expense ratio and exit load from your total returns. This can negatively affect your overall returns.

Different Types of Open-Ended Funds

The different types of open-ended funds are categorised into asset class-wise, speciality-wise, and debt mutual funds.

• Types Based on Asset Class

  • Large-cap fund
  • Small-cap fund
  • Multi-cap fund
  • Mid-cap fund
  • Large and mid-cap fund
  • Sectoral fund or thematic fund
  • Contra fund
  • Value fund
  • Equity-linked savings scheme

• Types Based on Debt Funds

  • Index funds
  • Asset allocation funds
  • Commodity funds or hedge funds
  • Retirement funds
  • Children funds

• Types Based on Speciality

  • Ultra short-duration fund
  • Short or medium-duration fund
  • Balanced fund or hybrid fund
  • Credit risk fund
  • Money market fund
  • Banking and PSU fund
  • Liquid fund
  • Long-duration fund
  • Overnight fund
  • Corporate bond fund

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Open-Ended Funds and Closed-Ended Funds: Key Differences

Since you know open-ended mutual funds, now let us analyse how they are different from closed-ended funds:

Taxation on Open-Ended Funds Profits

Profits on open-ended mutual funds are taxable as capital gains, and the tax treatment differs depending on whether the fund is categorised as a debt or equity fund.

• 1. Equity Funds

A fund is considered an equity fund if it allocates at least 65% of its total assets to equities. A 20% tax is applied to short-term capital gains that are held for less than a year. In addition, capital gains over INR 1.25 lakh that are held for more than a year are subject to 12.5% tax.

• 2. Debt Funds

A fund is classified as a debt fund if it makes at least 65% of its investments in debt securities. If funds are acquired after April 1, 2023, all the gains shall be considered as short-term capital gains (STCG). This STCG tax rate is applicable according to the individual’s slab rate.

Who Needs to Invest in Open-Ended Mutual Funds?

The largest segment of the mutual fund market is made up of open-ended funds. Consequently, open-ended funds are accessible to the majority of investors. Investors looking for diversification, professional management, and flexibility can benefit from open-ended mutual funds. All they have to do is invest within their investment horizon, risk tolerance, and financial objectives.

Final Thought

Investors can engage in the financial markets flexibly and conveniently with open-ended mutual funds. They have become more well-liked by investors looking for ease and possible profits because of their benefits of liquidity, diversification, and expert management.

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Frequently Asked Questions

1. Is it better to invest in closed-ended or open-ended funds?

It completely depends on you and your investment goals for choosing between a closed-end fund and an open-ended fund. While open-ended funds offer high liquidity, closed-ended funds have fixed terms and a limited period of redemption.

2. What are the disadvantages of an open-ended mutual fund?

Some of the disadvantages of open-ended mutual funds are high volatility, cash flow risks, exit loads and expense ratios.

3. Can I withdraw funds from an open-ended mutual fund at any time?

Yes, you can withdraw funds from open-ended funds at any time due to their high liquidity.