Saturday, September 20, 2008
Open-end Funds vs. Closed-end Funds
| Open-end funds are those funds in which the company can always issue more shares outstanding. This, in effect, adds to the net assets of the company. A closed-end fund (or publicly traded mutual fund) is one that is bought and sold just like the shares of a regular stock. The number of shares in a closed-end mutual fund stays fixed. This is the way in which it differs drastically from an open-end fund. Closed-end funds also have a commission which gets paid to brokers because the shares of these funds are traded over-the-counter, or in the same way that stocks are. One note of caution about closed-end stock funds: If you buy a stock fund when it is first offered for sale, you will undoubtedly take a hit. Because the fund's shares are offered at their actual value, they start trading at a discount almost immediately. So the best thing to do is to stay away from closed-end stock funds. Closed-end funds don't really retreat that much during a downturn in the market, but they are preferable for the long-term investor. If you're the type of investor who buys and sells shares rapidly, then you would lose a lot of money in the commissions of closed-end funds. Closed-end Funds vs. Open-end Funds Type How Shares are Bought Sales Price Shares Outstanding Closed-end Stock Exchange Market price Fixed Open-end Directly through fund Net asset value Varies |
posted by hearthy at 8:06 PM
