Question

What are open-and closed-ended grants? What are their relative advantages and disadvantages?

Answer 1

Open - ended grants : These are the type of grants which do not have an upper limit to it. It is also known as open ended entitlement grants.

Advantages -

• It allows the investors to enter and exit anytime, conveniently.
• It provides high liquidity.
• It helps the investors in taking a systematic approach.

Disadvantages -

• People might exploit open ended grants.
• It may lead to large outflows of funds.
• It might tempt the investors to take risky decisions.

Closed ended grants : These are the type of grants which has an upper limit fixed to the fund.

Advantages -

• It helps in forming a stable asset base.
• It doesn't not have any costs associated with distribution.
• Investors can use leverage to enhance growth.
  

Disadvantages -

• Its value fluctuates with the forces of supply and demand.
• It can be disadvantageous for short term investments.