How are Close-ended Mutual Funds emerging as a good investment option

In India, Mutual Fund investors are increasing day by day. They are looking MF investment as a viable source of income for a comfortable lifestyle without worry of inflation. Mutual Funds gives you a better return and help you to increase your wealth. And it also helps you to diversify your investment portfolio. Mutual Fund attracting the investor's attention because of the power of compounding and rupee cost averaging.

One of the reasons for increasing interest in Mutual Fund investment is close-ended mutual fund. This Mutual Fund category has emerged as a good investment option. Close-ended MF caters only a limited number of investors. This makes the Close-ended MF sell their shares only on the IPO (Initial Public Offering) day.

The advantage of Close-ended Mutual Fund Scheme:

The Close-ended Mutual Funds systematically managed by Professional Fund Managers. They generally devoid of any unnecessary chaos and mismanagement because they are pre-planned.

As the closed-ended funds planned well in advance, the number of shares and the securities which are to invest in is pre-decided as well.

Close-funded mutual funds often have the option of dividend reinvestment. Where the dividend earned on the investments further reinvested to upscale the investment value. This helps in compounding the investment and results in a much higher Net Asset Value (NAV) of the investment, especially in the long-term.

Investors’ don’t sell their shares in panic due to low liquidity and this remains a plus point especially when it comes to bringing stability. This does not let redemption pressure to come overhead.

If you want to make the best return through Close-ended Mutual Funds, here are some tips:

There is no past history or real-time analysis of the fund, as the fund declared and available only during the IPO. This means you have to completely rely on your analysis of the portfolio. Before making any decision, you need to ensure that the portfolio you have chosen has the right set of securities for a better return on investment.

Close-ended mutual funds, offer low liquidity of the funds, where unlike open-ended mutual funds, you do not have the option of exit anytime. The only way you can sell a close-ended mutual fund prior to maturity is on the stock exchange. This means you need to make sure that you can afford to fix your funds for a longer duration.

If you do not have a large amount to invest in one go and are looking forward to taking SIPs (Systematic Investment Plan), then you need to consider this. Close-ended mutual funds do not offer the option of SIP, so you need to invest whatever amount you want to in a go during the IPO declaration.