How to invest in close-ended funds

Firstly, investors must be comfortable with the illiquidity associated with a close-ended fund. Hence only that portion of the investible surplus which investors can set aside for a longer time frame must be allocated to a close-ended fund.

With no historical performance or other parameters to evaluate the close-ended fund on, the fund house assumes prime significance. Investors must invest their funds in schemes from solid process-driven fund houses. The fund house needs to have clearly defined investment practices and policies; the same can make the fund’s performance largely immune to events like change in fund management.

Finally, investors must be comfortable with the investment proposition offered by the close-ended fund. Unlike an open-ended fund, where investors have the option of easily liquidating their investments, investors in a close-ended fund are required to live with their investments throughout the fund’s tenure.