Ideally the difference should be nil; however this depends on the extent of commissions that are front loaded into the respective schemes. Close ended funds tend to be aggressively pushed a lot and hence may carry higher upfront commission.
Close ended fund (or “Series” funds) are good for the AMC (no redemption pressure) and the agent/bank/distributor as they get commissions.
The main difference vs an ELSS fund is that the latter is still open ended, as you can redeem anytime after 3 years. Yes there is a 3 year lock in but you also get a substantial tax benefit (as per the income tax slab you fit in).
A close ended fund tends to get auto redeemed or rolled over into a new scheme that the agent is only too eager to push.
Two tips in general for mutual fund investing:
- Do not invest in close ended funds. Always go for open ended for flexibility.
- The new SEBI categorisations apply to open ended funds and not to close ended funds. To avoid confusion and marketing hype, stay away from close ended funds.
- Always invest in direct plan mutual funds. The commission you save is HUGE over time, upto 40% more. If already invested, switching is fast, paperless and safe. Here is how to switch.
