Should You Buy Close-Ended Mutual Funds?


wealthymatters.comIf you ever hear a spiel that goes something like this:Staying invested in the market for the long term ,through various cycles ensures that investors get rich.Unfortunately at the first sign of trouble most mutual investors run.Then the fund house has redemption problems and long term investors like you pay for the weakness of these short term investors.But if you go for XYZ scheme,there is a lock-in of n years so no matter what happens investors can’t flee easily,so ABC wise fund manager can work his magic and give you extraordinary returns.And BTW this fund is now floating its NFO.If you delay you can’t benefit from this good scheme for n more years-Be skeptical.Very skeptical.This salesperson might just stick you into a dud investment you can’t exit easily.

Personally I see no good reason to buy equity mutual funds at NFOs.Close-Ended mutual funds are not the most liquid of securities.So they are available at steeply discounted rates on the stock exchanges.So if you must buy them do so in the secondary market,especially closer to the date they become open-ended.

FMPs are another class of closed debt funds that you can consider as an alternative to FDs,  especially if you fall in the highest tax bracket ,for the flexibility they offer in terms of tax management.FMPs are especially good bets when the CD market heats up.It’s a bonus when the inflation rates are high and expected to remain as high or go higher.

Also if you plan on holding your investment for the full tenure of the close ended scheme,you can consider capital protection mutual fund schemes.Only by staying put till the end you will be able to take advantage of the capital protection.

For a low down on close ended mutual funds watch the video below:

 

About Keerthika Singaravel
Engineer,Investor,Businessperson

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