What are open ended and closed ended funds?
Open-ended Funds - An open-end fund is a type of mutual fund that does not have restrictions on the number of shares the fund can issue. Purchasing shares create new ones, whereas selling shares takes them out of circulation. Shares are bought and sold on demand at their net asset value (NAV), which is based on the value of the fund’s underlying securities and is calculated at the end of the trading day.
Close-ended Funds - The unit capital of closed-ended funds is fixed and they sell a specific number of units. Unlike in open-ended funds, investors cannot buy the units of a closed-ended fund after its NFO (New Fund Offer) period is over. A closed-end fund raises a prescribed amount of capital only once through an NFO by issuing a fixed number of shares, which are purchased by investors in the closed-end fund as stock.The stock price of a closed-end fund fluctuates according to market forces, such as supply and demand, as well as the changing values of the securities in the fund's holdings.