Lesson 6 of 7 · 15 min
Mutual funds: open-end, closed-end and fund types
A mutual fund pools investors' money into one professionally managed portfolio priced at net asset value; open-end funds issue and redeem shares at NAV, closed-end funds have a fixed number of shares that trade at a premium or discount, and funds are grouped by what they hold.
In short
- A mutual fund is a commingled pool: each investor has a pro-rata claim on the fund's income and value. Its value per share is the net asset value (NAV), computed daily from closing prices.
- Advantages: low minimums, diversification, daily liquidity, standardised performance and tax reporting.
- Open-end: new shares are created and redeemed at NAV; easy to grow, but cash flows force buying and selling and the fund keeps a cash buffer.
- Closed-end: fixed number of shares traded between investors; price can be at a premium or discount to NAV; limited ability to grow.
- Load funds charge a sales fee to buy and/or redeem on top of the annual fee; no-load funds charge only the annual fee.
- Types: money market (CNAV or VNAV, not deposit-insured), bond, stock (active vs index), hybrid/balanced (including target-date funds).
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