Open Ended and Closed Ended Funds

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  • Topic: Mutual fund, Open-end fund, Closed-end fund
  • Pages : 3 (937 words )
  • Download(s) : 311
  • Published : March 20, 2013
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DIFFERENCES BETWEEN OPEN-ENDED AND CLOSED-ENDED FUND
OPEN END FUND DEFINATION
A type of mutual fund that does not have restrictions on the amount of shares the fund will issue. If demand is high enough, the fund will continue to issue shares no matter how many investors there are. Open-end funds also buy back shares when investors wish to sell. CLOSED END FUND DEFINATION

A type of fund with a fixed number of shares outstanding, and one which does not redeem shares the way a typical mutual fund does. Closed-end funds behave more like stock than open-end funds: closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange, and they are not obligated to issue new shares or redeem outstanding shares as open-end funds are. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value ("at a discount") or above it ("at a premium") also called closed-end investment company or publicly-traded fund. The main differences between these funds are;

Open-ended funds buy and sell units on a continuous basis and hence allow investors to enter and exit as per their convenience. The units can be purchased and sold even after the initial offering (NFO) period (in case of new funds).Under closed-ended funds their unit capital is fixed and they sell a specific number of units. Unlike in open-ended funds, investors cannot buy the units of a closed-ended fund after its NFO period is over. This means that new investors cannot enter, nor can existing investors exit till the term of the scheme ends. However, to provide a platform for investors to exit before the term, the fund houses list their closed-ended schemes on a stock exchange. The units of an open-ended fund are bought and sold at the net asset value (NAV) CEFs do not have to deal with the expense of creating and redeeming shares, they tend to...
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