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Mutual Funds
Open-end vs Closed-end |
Mutual funds are identified by more than their
sales commission structure. They're also classified by the method they use to
sell shares to investors. Fund shares are made available in one of two ways:
open-end or
closed-end.
Open-End Funds
Open-end funds make up the majority of mutual funds on the market today. These type of
funds continuously accept new money from investors by issuing additional shares for each
purchase.
The number of shares outstanding in open-end funds are not fixed like closed-end funds.
The share amount fluctuates as investors purchase or redeem shares from the fund.
The price per share of a mutual fund is called the Net Asset Value, or NAV. It's computed
each day at the close of the market by dividing the fund's net assets by the number of
shares outstanding. The NAV is the price quote you'll see if you look up your fund's
symbol in the newspaper or online.
Closed-End Funds
Closed-end funds are a second method fund companies use to allocate shares to
investors. Buying a share in a closed-end fund is like buying a share of stock in a
publicly held company. Both trade on the major stock exchanges, and each has a fixed
number of shares outstanding. For this reason, closed-end shares may trade at a discount
to their Net Asset Value (NAV) -- where the share price is actually less than the NAV.
This is one of the inherent risks associated with closed-end funds.
Next: The Prospectus |
