Close-Ended Fund

A close-ended fund (also written as closed-end fund) is a mutual fund scheme with a fixed maturity date, where units are offered for subscription exclusively during a defined New Fund Offer (NFO) window. After the NFO closes, no fresh subscriptions or direct redemptions are permitted until the scheme matures. This structure is governed by SEBI Mutual Fund Regulations, 1996.

How the category is defined

SEBI Mutual Fund Regulations 1996 define a close-ended scheme as one that has a stipulated maturity period and where investors can purchase units only during the NFO. Key regulatory requirements under SEBI include:

• Mandatory listing: SEBI requires that all close-ended schemes (equity and debt) be listed on a recognised stock exchange within 30 days of allotment. This listing provides a secondary-market exit mechanism, though actual liquidity depends on market-making activity and investor interest.
• No redemption before maturity: Unlike open-ended funds, AMCs are not obligated to redeem units before the scheme's maturity date. Some close-ended equity schemes offer periodic (annual/biennial) repurchase windows, but these are optional features, not regulatory mandates.
• Fixed investment horizon: Debt close-ended schemes — commonly marketed as Fixed Maturity Plans (FMPs) — typically run for defined durations (1 year, 3 years, 5 years). The portfolio is structured to align maturities with the scheme's tenure, reducing reinvestment risk.
• NAV disclosure: Close-ended funds must disclose NAV at least weekly (equity) or daily (debt), even though redemption is not available — this provides unit-holders with current valuation information.

What investors should look at

• Secondary-market liquidity: Listed close-ended funds often trade at a discount to NAV on the exchange, particularly as the scheme approaches maturity. Review the exchange trading volumes before assuming exit at NAV-equivalent prices.
• Maturity date alignment: Close-ended funds suit investors with a defined capital commitment horizon matching the fund's maturity. Early exit via exchange may involve a NAV discount and transaction costs.
• FMP indexation benefit (pre-Finance Act 2023): FMPs with 3+ year tenures previously offered indexation benefit on long-term capital gains. Finance Act 2023 removed the indexation benefit for debt mutual funds for units acquired after 1 April 2023. Units acquired before this date retain grandfathered treatment. Consult a qualified tax practitioner for individual tax implications.
• Portfolio transparency: Unlike open-ended funds, close-ended fund portfolios are fixed at inception (subject to tactical adjustments). Review the NFO document and initial portfolio disclosure to understand what you are committing capital to.

Worked example

Hypothetical 3-year FMP structure (for illustrative purposes):

• NFO dates: 1–5 June 2025
• Maturity date: 31 May 2028
• Portfolio: AAA-rated corporate bonds and PSU bonds maturing ≤31 May 2028; average yield-to-maturity at launch: 7.4% p.a.
• Listing: NSE/BSE within 30 days of allotment (mandatory under SEBI regulations)
• Redemption: Proceeds paid to unit-holders within 5 business days of 31 May 2028 maturity

If the investor sells on the exchange before maturity at a 2% discount to NAV due to low liquidity, the effective realised return is lower than the indicative yield-to-maturity at launch. This discount-to-NAV risk is a structural feature of close-ended fund secondary-market trading.

See also

• Open-Ended Fund
• Hybrid Fund
• IRR
• Mutual Funds in India — Complete Guide

Primary source

SEBI (Mutual Funds) Regulations, 1996: sebi.gov.in. Finance Act 2023 — amendments to debt fund taxation: incometax.gov.in. AMFI data on close-ended schemes: amfiindia.com.

Past performance is not indicative of future returns. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. ARN-314872. APMI APRN-01658. Content is informational and not investment advice.