In terms of ease with which investors can enter and exit funds, mutual funds are broadly divided into two classes:
Open-ended funds are open for investors to enter or exit at any time, even after the NFO. Although some unit-holders may exit from the scheme, wholly or partly, the scheme continues operations with the remaining investors. The scheme does not have any kind of time frame in which it is to be closed. The ongoing entry and exit of investors implies that the unit capital in an open-ended fund would keep changing on a regular basis.
Close-ended funds have a fixed maturity. Investors can buy units of a close-ended scheme, from the fund, only during its NFO. The fund makes arrangements for the units to be traded, post-NFO in a stock exchange. This is done through a listing of the scheme in a stock exchange. Such listing is compulsory for close-ended schemes. Therefore, after the NFO, investors who want to buy units will have to find a seller for those units in the stock exchange. Similarly, investors who want to sell units will have to find a buyer for those units in the stock exchange. Since post NFO, sale and purchase of units happen to or from counter-party in the stock exchange and not to or from the mutual fund – the unit capital of the scheme remains stable.
Interval funds combine features of both open-ended and close ended schemes. They are largely close-ended, but become open ended at pre-specified intervals. For instance, an interval scheme might become open-ended between January 1 to 15 and July 1 to 15 each year. The benefit for investors is that, unlike in a purely close-ended scheme, they are not completely dependent on the stock exchange to be able to buy or sell units of the interval fund.
Minimum duration of an interval period in an interval scheme/plan is 15 days. No redemption/repurchase of units is allowed except during the specified transaction period (the period during which both subscription and redemption may be made to and from the scheme). The specified transaction period will be of minimum 2 working days, as per revised SEBI Regulations.