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Mutual Funds - Open-Ended And Closed-End Funds

From a structural perspective, mutual funds can typically be broken down into two types.

Open-Ended Funds
These funds dominate the mutual fund marketplace, in terms of volume and assets under management. With open-ended funds, purchases and sales of fund shares take place directly between investors and the fund company. There's no limit to the number of shares the fund can issue; as more investors buy into the fund, more shares are issued. Federal regulations require a daily valuation process, called marking to market, which subsequently adjusts the fund's per-share price to reflect changes in portfolio (asset) value. The value of the individual's shares is not affected by the number of shares outstanding.

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Closed-End Funds (CEF)
These funds issue only a specific number of shares through an initial public offering and do not issue new shares as investor demand grows. Prices are not determined by the net asset value (NAV) of the fund, but are driven by investor demand. Purchases of shares are often made at a premium or discount to NAV.

Related Readings:

Popular Fund Types


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RELATED TERMS
  1. Forward Pricing

    A Securities and Exchange Commission regulation that requires ...
  2. Open-End Fund

    A type of mutual fund that does not have restrictions on the ...
  3. Closed-End Fund

    A closed-end fund is a publicly traded investment company that ...
  4. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  5. Fund Company

    A commonly used term to describe an investment company, which ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
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    Mutual funds have been in existence since 1924, when the first open-ended mutual fund was created. Since then, the market ... Read Answer >>
  3. What are the primary differences between a closed end investment and an open end ...

    Learn what the primary differences are between open-end investments and closed-end investments, and the implications for ... Read Answer >>
  4. Why do some closed-end mutual funds trade above or below their net asset values?

    Intuition tells us that a mutual fund's net asset value (NAV) (the net value of all assets within the mutual fund's portfolio ... Read Answer >>
  5. Can an open-ended fund's price appreciate significantly?

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  6. What risks are associated with a closed end investment?

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