4 Replies to “Difference B/W OPEN ENDED AND CLOSE ENDED MUTUAL FUND?”

  1. Open Ended means, you can redeem at your wish. They may not carry tax exemption.

    Closed Ended means you can’t redeem before the period is over, say 3 years. They are eligible for claiming exemption from tax.


  2. An open-ended mutual fund has an unlimited number of shares. Shares are valued at the end of the trading day and trade at net asset value, which is calculated by the firm, which manages the fund (e.g. T Rowe Price, Fidelity, Vanguard). There can be a transaction fee for trading shares or you can purchase shares of a no-load fund and avoid transaction fees. There are management fees for the fund though.

    A closed end fund has a finite number of shares which represents the entire holdings of the fund. Shares can trade at any time of the trading day and can trade above and below net asset value. The exchange traded funds are closed end funds. There is a transaction fee for trading shares.There are management fees for the fund and they are typically lower than open-ended funds investing in similar investments. You can exit a closed-ended fund whenever you want as long as the exchange is open.


  3. Open ended funds.
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    A publicly held investment company with a diversified portfolio investments,which can sell any number of shares and become larger. Its shares are issued at prices fixed from time time and can be redeemed at prices announced by it.

    Close ended funds.
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    A mutual fund which owns a diversified portfolio of investments,but which,after the initial issue of shares cannot sell more shares in the primary market Closed end funds shares are traded in the stock exchange and usually have a market price different from their net asset value


  4. A closed-end fund is a collective investment scheme with a limited number of shares.

    In the U.S. legally they are called closed-end companies and form one of three SEC recognized types of investment company along with mutual funds and unit investment trusts. Other examples of closed-ended funds are Investment trusts in the UK and Listed investment companies in Australia.

    New shares are rarely issued after the fund is launched; shares are not normally redeemable for cash or securities until the fund liquidates. Typically an investor can acquire shares in a closed-end fund by buying shares on a secondary market from a broker, market maker, or other investor — as opposed to an open-end fund where all transactions eventually involve the fund company creating new shares on the fly (in exchange for either cash or securities) or redeeming shares (for cash or securities).

    The price of a share in a closed-end fund is determined partially by the value of the investments in the fund, and partially by the premium (or discount) placed on it by the market. The total value of all the securities in the fund divided by the number of shares in the fund is called the net asset value, often abbreviated NAV. The market price of a fund share is often higher or lower than the NAV: when the fund’s share price is higher than NAV it is said to be selling at a premium; when it is lower, at a discount to the NAV.

    Closed-end fund shares trade continually at whatever price the market will support. They also qualify for advanced types of orders such as limit orders and stop orders. This is in contrast to open-end funds which are only available for buying and selling at the close of business each day, at the calculated NAV, and for which orders must be placed in advance, before the NAV is known, and can only be simple buy or sell orders. Some funds require that orders be placed hours or days in advance.

    Closed-end funds trade on exchanges and in that respect they are like exchange-traded funds (ETFs), but there are important difference between these two kinds of security. The price of a closed-end fund is completely determined by the valuation of the market, and this price often diverges substantially from the NAV of the fund assets. In contrast, the market price of an ETF trades in a very close range of its net asset value, because the structure of the ETF would allow major market participants to gain arbitrage profits if the market price of the ETF were to diverge substantially from the NAV. The market prices of closed-end funds are often ten to twenty percent different than the NAV while the value of an ETF would only very rarely differ from the NAV by more than one-fifth of a percent.

    An open-end(ed) fund is a collective investment which can issue and redeem shares at any time. An investor can purchase shares in such funds directly from the mutual fund company, or through a brokerage house.

    Open-ended funds are available in most developed countries, however terminology and operating rules vary. For example in the U.S. they are called mutual funds, in the UK they are either unit trusts or OEICs (Open-Ended Investment Companies) and in most of Europe they are SICAVs.

    An open-ended fund is equitably divided into shares (or units) which vary in price in direct proportion to the variation in value of the funds net asset value. Each time money is invested new shares or units are created to match the prevailing share price; each time shares are redeemed the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets.

    With open-ended funds, the value is precisely equal to the NAV. So investing $1000 into the fund means buying shares that lay claim to $1000 worth of underlying assets (apart from sales charges). But buying a closed-end fund trading at a premium might mean buying $900 worth of assets for $1000.

    Some advantages of closed-end funds over their open-ended cousins are financial. CEFs’ fees are usually much lower (since they don’t have to deal with the expense of creating and redeeming shares), they tend to keep less cash in their portfolio, and they need not worry about market fluctuations to maintain their “performance record”. So if a stock drops irrationally, the closed-end fund may snap up a bargain, while open-ended funds might sell too early.

    Also, if there is a market panic, investors may sell en masse. Faced with a wave of sell orders and needing to raise money for redemptions, the manager of an open-ended fund may be forced to sell stocks he’d rather keep, and keep stocks he’d rather sell, due to liquidity concerns (selling too much of any one stock causes the price to drop disproportionately). Thus all it may have left are the dud stocks that no one wants to buy. But an investor pulling out of a closed-end fund must sell it on the market to another buyer, so the manager need not sell any of the underlying stock. The CEF’s price will likely drop more than the market does (severely punishing those who sell during the panic), but it is more likely to make a recovery when the intrinsically sound stocks rebound.

    Because a closed-end fund is on the market, it must obey certain rules, such as filing reports with the listing authority and holding annual stockholder meetings. Thus stockholders can more easily find out about their fund and engage in shareholder activism, such as protest against poor management.

    I hope u understood the difference now….
    good luck, happy investing…………





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