DEFINITION of 'Closed To New Accounts'
When an investment vehicle is no longer accepting new investors, but is still operating for existing investors. This can apply to mutual funds, hedge funds or any professionally managed pooled investment vehicle. In addition, institutional money managers may close certain portfolio groups to new accounts, while leaving others open. There will be an "as of" date when the fund will officially close to new investors. Depending on the situation, this may or may not also affect the ability for current investors to add to their holdings in the fund.
BREAKING DOWN 'Closed To New Accounts'
The managers of a fund can choose to close for new investors for several reasons, but the most noticeable is to control the size of the fund and to lower the administrative costs. Generally speaking, the smaller a fund, the more nimble it can be and the more markets in which it can participate.
Some mutual funds become so large that monthly inflows can amount to billions of dollars. Over time, the expected return from new money will drag down the returns of current investors.
Closing a fund off to new accounts is only one method of controlling the asset base's growth. Other means include raising the minimum investment amount and/or stopping existing investors from contributing more to the fund.