Poor Performance – Close-ended schemes have not performed as well as open-ended peers across different time horizons. Closed-ended funds have lock-in periods to give fund managers flexibility in allocation but haven’t been able to increase returns much because of the lock-in period. Another reason is these funds are actively managed and are associated with a high expense ratio.
Only Lumpsum Investment – Since these funds are associated with lumpsum investments, and lock-in period is estimated to be 3-5 years. Lumpsum investments are risky, and they might return negative in some cases. SIP is the solution to average the investment, and lumpsum can benefit investors if the fund is held for a longer period.
No Track Record: Investing in such funds is one-time, and that is at the time of inception by lumpsum mode. So, investors can’t redeem it till the maturity period. So, no performance track record is available for these funds, and it’s a big disadvantage for investors to track performance with the NAV.
The Portfolio is highly Fund Manager Driven: Since the fund manager completely manages the fund portfolio, investors don’t know about the portfolios and the asset allocation. So, the complete fund performance is relaid on the fund manager.