Open-End Fund

REVIEWED BY JAMES CHEN

Updated Feb 26, 2018

What is an Open-End Fund

An open-end fund is a type of mutual fund that does not have restrictions on the amount of
shares the fund can issue. The majority of mutual funds are open-end, providing investors
with a useful and convenient investing vehicle. When a fund's investment manager(s)
determine that a fund's total assets have become too large to effectively execute its stated
objective, the fund will be closed to new investors, and in extreme cases, will be closed to
new investment by existing fund investors.

BREAKING DOWN Open-End Fund

An open-end fund is a mutual fund issuing unlimited shares of investments in stocks and/or
bonds. Purchasing shares creates new ones, whereas selling shares takes them out of
circulation. Shares are bought and sold on demand at their net asset value (NAV), which is
based on the value of the fund’s underlying securities and is calculated at the end of the
trading day. When a large number of shares are redeemed, the fund may sell some of its
investments to pay the investor.

An open-end fund provides investors an easy, low-cost way to pool their money and
purchase a diversified portfolio reflecting a specific investment objective, such as growth
and income. Investors do not need a lot of money to gain entry into an open-end fund,
making the fund easily accessible for investment.

Similarities and Differences Between Open- and Closed-end Funds

Both open- and closed-end funds are run by portfolio managers with help from analysts.
Both types of funds mitigate security-specific risk by holding diversified investments, and by
having lower investment and operating costs due to the pooling of investor funds.

However, an open-end fund has unlimited shares issued by the fund, whereas a closed-end
fund has a fixed number of shares launched through an initial public offering (IPO) and sold
on the open market. Open-end shares do not trade on an exchange, are less liquid, and are
priced at the NAV at the trading day’s end. Closed-end shares trade on an exchange and are
more liquid; prices trade at a significant discount or premium to the NAV based on supply
and demandthroughout the trading day.

Open-end funds must maintain cash reserves to meet redemptions. Since closed-end funds
do not have that requirement, they may invest in illiquid stocks, securities or markets such
as real estate. Closed-end funds may impose additional costs through wide bid-ask
spreads for illiquid funds, and volatile premium/discount to NAV. Open-end funds typically
provide more security, whereas closed-end funds often provide a bigger return.

Closed-End Fund

REVIEWED BY JAMES CHEN

Updated Feb 7, 2018

What is a Closed-End Fund

A closed-end fund is organized as a publicly traded investment company by the Securities
and Exchange Commission (SEC). Like a mutual fund, a closed-end fund is a pooled
investment fund with a manager overseeing the portfolio; it raises a fixed amount of capital
through an initial public offering (IPO). The fund is then structured, listed and traded like a
stock on a stock exchange.

BREAKING DOWN Closed-End Fund

A closed-end fund is also known as a "closed-end investment" or "closed-end mutual fund."
While a closed-end fund has several unique characteristics that distinguish it from
an open-end fund, such as a mutual fund or exchange-traded fund (ETF), it also shares
several similarities. A closed-end fund raises a prescribed amount of capital only once
through an IPO by issuing a fixed number of shares, which are purchased by investors in the
closed-end fund as stock. Unlike regular stocks, closed-end fund stock represents an interest
in a specialized portfolio of securities that is actively managed by an investment advisor, and
typically concentrates on a specific industry, geographic market or sector. The stock price of
a closed-end fund fluctuates according to market forces, such as supply and demand, as well
as the changing values of the securities in the fund's holdings. One of the largest closed-end
funds is the Eaton Vance Tax-Managed Global Diversified Equity Income Fund.