Close-End Liquid Mutual Funds

How Close-End Liquid Funds Work

These funds invest in short-term debt and money market instruments with maturities of up to 91 days, including Treasury Bills, Commercial Papers, and Certificates of Deposit. Investors can only enter during the New Fund Offer (NFO) period, usually lasting 15 days. After this, no new investments are accepted until maturity, typically 3 to 12 months.

Although they are closed-ended, SEBI regulations require listing on stock exchanges, allowing investors to sell units before maturity, though at market-driven prices.

Key Features

• Fixed Maturity Period: Typically 3 to 12 months, making it suitable for goal-based short-term investing.

• Exchange Trading: Units trade on stock exchanges, where prices may fluctuate based on demand and supply.

• Lower Volatility: No frequent investor transactions reduce NAV fluctuations.

• Risk Profile: Classified as A-I (relatively low credit and interest rate risk) under the 2025 riskometer.

Benefits of Close-End Liquid Funds

• Portfolio Stability: Fund managers do not face sudden redemption pressures, leading to more consistent returns.

• Higher Returns: Some closed-end liquid funds in 2025 offer annualised returns of 7.22%–7.37%, slightly higher than open-ended liquid funds.

• Predictable Investment Horizon: Clear maturity dates help with short-term financial planning.

• Tax Efficiency: Potential tax advantages if held beyond a specific period.

Challenges to Consider

• Limited Liquidity: Investors cannot redeem before maturity unless they are sold in the secondary market.

• Market Price Fluctuations: Units may trade at a discount to NAV if demand is low.

• Restricted Entry: Available only during the brief NFO period.

• Opportunity Cost: Investors may miss higher-yielding opportunities if interest rates rise during the lock-in period.

Final Thoughts

Close-end liquid mutual funds provide disciplined short-term investing. They offer more stability and slightly better returns than open-ended liquid funds. These funds work well for investors with fixed investment timelines. They can hold them until maturity, even with liquidity constraints.