Actively managing investments can often be difficult, time-consuming, and even confusing, especially for investors without the expertise or patience to track the markets daily.
That’s why many people turn to professional fund managers through collective investment schemes, commonly known as mutual funds.
While this approach saves time and provides access to expert management, it’s equally important to understand how these funds operate particularly in the two key variants: open-ended and closed-ended funds.
Knowing the difference between them helps you make smarter choices about returns, risks, and how to invest effectively — and even guides your first decision on which one to start with and why.
An open-ended fund is a type of collective investment scheme that continuously creates and redeems units based on investor demand.
Examples: Money Market Funds, Bond Funds, and Balanced Funds such as the Stanbic IBTC Bond Fund (SIBOND) or the ARM Money Market Fund.
A closed-ended fund, by contrast, issues a fixed number of units during its initial public offer and does not redeem them later.
Examples: The Nigerian Infrastructure Debt Fund (NIDF) and UPDC Real Estate Investment Trust (REIT).
Both offer diversification and professional management but differ in liquidity, risk, and the kind of returns they generate.
Let us look at what comes to you, when you invest and their specific risks
Open-ended funds pay you from the interest or dividends earned on the assets they invest in.
So, if SIBOND earns 15–18% a year, your returns come in the form of cash payouts or are reinvested automatically, helping your money grow steadily through compounding.
Closed-ended funds, like the Nigerian Infrastructure Debt Fund (NIDF) or UPDC Real Estate Investment Trust (REIT), make you money differently.
Here, your earnings come from dividends, interest income, and potential capital gains.
In simple terms, open-ended funds make you money by earning interest regularly, while closed-ended funds pay you through dividends and long-term value growth.
One gives you an income you can touch; the other rewards you for giving your money time to work.
One gives you an income you can touch; the other rewards you for giving your money time to work.
Given SEC weekly valuation report on collective investment scheme of October, the return ranges between 18% – 46%
These funds can help you make money, but they’re not risk-free, and the level of risk depends on what they invest in and how easy it is to access your money.
Open-ended funds fall across different risk levels.
In good years, returns can climb above 25%, but during downturns, investors may see declines
For closed-ended funds, they carry market and liquidity risk.
You can’t withdraw directly from the fund; you have to sell your units on the NGX or FMDQ, and prices depend on demand.
For Open-Ended Funds:
For Closed-Ended Funds:
They also serve as inflation hedges because the assets (infrastructure and real estate) often appreciate over time.
A balanced investor can combine both: keep 60–70% in open-ended funds for liquidity and 30–40% in closed-ended funds for higher growth potential.