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In simple terms, the closed-end funds are closed after their launch period till maturity. This thing provides the fund investors or managers a lot of freedom to proceed with their investments further. Closed-End Fund Performance can be tracked easily with the help of parameters set by the investment agencies. There are numerous good examples of closed-end funds from which you can have ideas for your investments. Understanding the advantages can significantly help you decide what type of fund you need to invest in for better returns in a short period.
What are the advantages of a Closed-End Fund?
A closed-end fund is a type of debt or equity fund in which the fund house issues a fixed number of units at launch. After the NFO period, New Fund Offer period ends, investors can neither buy nor sell the units of the closed-ended funds.
These closed-end funds are introduced through NFOs and then traded in the market like stocks and have a specified period of maturity. As the net asset value determines its actual value, the traded price can be above or below its value, depending on its demand and supply units. As time goes on, people are developing more. People are now much interested in investing. This is also fuelled by the increase in Closed-End Fund Performance from time to time.
The advantages of closed-end funds are as follows:
- Market Pricing- Closed-end funds are traded on the stock exchange, where investors can buy or sell shares, however, on the trading day. Investors can trade their shares at a discount to anyone at a premium. Investors can use common stock market methods such as market orders, short sell stops, and margin trading.
- Lower Expense Ratio- With a fixed number of shares, open-ended funds have associated extra charges, but closed-ended funds do not have any extra costs, such as distribution, issuance, and then redeeming. If we comprehend the closed-ended funds with some other fund, this leads us to the low expense ratio of closed-ended funds. Over time, a lower expense ratio means lower fees.
- Instant Dividend Reinvestment- Investors in closed-ended funds can reinvest additional fund shares for any dividend distribution. By doing this, investors can add to One Fund holdings without any trading costs.
- Trading Flexibility- Investors can buy or sell shares during the share trading day at their prevailing market value. This flexibility gives an advantage to the investors to take their decisions keeping in mind the real-time information. The Closed-End Fund Performance helps understand the trading flexibility in a better manner.
Closed-End Funds Performance vs Open-End Funds
These funds are not different, just in name. There are a variety of options available for investing. In the same line, the differences between the two types of funds are as follows –
Parameters of Comparison | Closed-End Funds | Open-End Funds |
Date of Redemption | Fixed at investments | Not fixed |
Capitalisation | limited | unlimited |
Liquidity | Liquidity rate is below 100 per cent | Liquidity rate is 100 percent |
Listing | Listed at exchanges | Not listed at the exchanges |
Independence of Fund Manager | No pressure of redemption and more freedom | Redemption pressure and also to meet the objectives. |
NAV | Listed at a discounted price because of liquidity stress. | Depicted at 100 percent securities and asset value |
Investment Procedure of Close Ended Funds
You can invest in closed-ended funds through a Direct Asset Measurement Company (AMC) or through distributors or agents for taking benefits of Closed-End Fund Performance. If you want to invest in a direct plan, you need to get a much higher number of units as you do not have to pay any distributors. Alternatively, you can also subscribe to the closed-ended fund online through the official website of the mutual fund company. One must make sure that the investments are made safely because there might be a risk attached to each stage. Cyber frauds are also prevalent in the present era, and everyone should stay vigilant regarding all kinds of investments.
Examples of Close-ended Funds
The following list includes six of the most popular close-ended funds –
- SBI Tax Advantage Fund
- ICICI Prudential Growth Fund
- SBI Tax Advantage Fund
- ICICI Prudential Growth Fund
- ICICI Prudential R.I.G.H.T. Fund
- Reliance FHF XXV
Conclusion
As you all know about Closed-Ended Funds. Close-ended fund performance is considered to be much better if compared to other funds, as closed-ended funds have a lower expense ratio. The popularity of these funds depends solely on the number of returns and the period for which the concerned person can hold them, irrespective of market fluctuations from time to time.
The advantages of closed funds investments are numerous. You can invest in closed-ended funds through a Direct Asset Measurement Company (AMC) or distributors or agents. Various examples of closed-ended funds are also mentioned above, from which you can have ideas for your investments.
