Open-End Fund
AdvancedAn open-end fund is an investment fund that continuously issues new units when investors buy and redeems units when investors sell, at a price based on the fund's net asset value.
Most mutual funds and unit trusts are open-end funds. There is no fixed number of units. When investors put money in, the fund creates new units; when they take money out, the fund cancels units and pays them from its assets, selling investments if needed.
Because investors buy and sell directly with the fund at net asset value, the price closely reflects the value of the underlying investments. Most open-end funds price once a day.
For example, if an open-end fund has a net asset value of 12.50 per unit, a new investor putting in 10,000 receives 800 units at that day's price.
Open-end funds offer convenience and easy access to cash for investors. However, if many investors withdraw at once, the fund may be forced to sell investments quickly, possibly at poor prices, which can harm remaining investors. This is a particular concern for funds holding less liquid assets, such as property or some bonds, which may suspend withdrawals in stressed conditions. Exchange-traded funds share some features with open-end funds.
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