How are closed-end funds different from open-ended funds?
Although you can’t sell closed-end fund units, there is a small exit window available
A mutual fund scheme is either open-ended or closed-end. While an open-ended fund allows you to enter and exit any time, a closed-end fund doesn’t. You can buy units of a closed-end fund in the new fund offer period, when the scheme is launched. Every closed-end fund comes with a fixed term; mostly 3-5 years. Once this period is over, the scheme gets redeemed and money is returned to the investor.
Although you can’t sell closed-end fund units, there is a small exit window available. All closed-end funds are listed on the stock exchange. You can sell and buy units there. The catch is this: the units are bought and sold at the market price. Typically, the market price of a closed-end fund is at a discount to the scheme’s net asset value. Hence, selling on stock exchanges isn’t a good idea.
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