Mutual Funds can either be closed ended or open ended. Open Ended funds are usually more common than the closed ended. Here is a brief post about the difference between these two types of funds:

Open Ended Funds

There is no limit to the size of the fund. You can apply or redeem more units/shares of the fund at any time. The price you pay will be the net asset value of the fund. The net asset value of the fund is solely determined by the change in prices of the stocks or bonds the fund owns and not the size of the fund itself.

Most of the unlisted funds are open ended. There are however a few open ended listed funds as well…The exchange traded funds on which I blogged about recently is an open ended fund.

Close Ended Funds

The fund size is determined at the inception of the fund. The fund does not regularly issue new shares. Usually closed ended funds are all listed. To get more shares or to redeem existing shares, investors buy and sell to each other on the Stock Exchange. The buy/sell price is usually a premium or a discount to the net asset value of the fund. The price is determined not just by the net asset value but also by market sentiments etc (just like in any other listed security).

An example of the close ended fund are the listed property trusts.

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Topics: Financial Definitions |

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