Should you avoid close-ended schemes?
Take a look at the three-year rolling returns based on the Sensex below, the returns can be highly volatile.
In a close-ended scheme, there is no option to invest systematically, which is the ideal way to invest in equities. Therefore, before investing, one would have to take a long term view of where the market is headed and this is something which even many experts can’t predict accurately.
More importantly, close-ended schemes do not have a track record. Of course, if such schemes have been launched in the past from the same fund house, you would get a view of the performance, but such information for schemes which are closed are hard to find. The market conditions and the strategy employed by the fund over those conditions would have been different. Therefore, unlike open-ended schemes, making an investment decision based on past performance would be difficult.
Even if you have reviewed similar schemes in the past, it is not necessary the scheme would invest in a similar portfolio. Different series of close ended schemes would have completely different portfolios.
Liquidity is another issue. If an investor would like to exit before the maturity date, they would have to do so through the stock exchange, i.e., they would have to get their units converted in dematerialised form if not already done and find a buyer for their units held.
Do you still think close ended schemes are a better choice?
