In the United States, open-end funds, also called open-ended funds, refer to mutual funds or bond funds. Investors can purchase shares in open-end funds directly from the fund manager. There is no limit to the number of shares in the fund that can be sold. Open-end funds managers also buy back shares from investors wishing to sell. This is unlike closed-end funds, which have a set number of shares sold through stock markets.
Returns on open-end funds investments are tied to the stock and bond markets. Open-end funds managers pool the fund money in an open-end fund to buy individual stocks and bonds. Fund shareholders get diversified investments just by purchasing fund shares. Shareholders pay for this investment expertise through management fees charged by the fund manager.
The share price of open-end funds is called its net asset value (NAV). Generally, the NAV is determined once each day. The NAV is usually calculated after the stock market closes for the day. The fund manager determines the value of the shares and deducts the expenses incurred that day to manage the fund. The result is the NAV.
Some open-end funds also include upfront sales fees, called a load. The load covers a commission paid to the salesperson that coordinated the sale with the fund manager. These salespeople are called brokers. There are also open-end mutual funds without these fees, called no-load funds. No-load fund shares are purchased directly through the fund manager, instead of going through a broker.
Investors can learn about the details of an open-end fund through a document provided by the fund manager called a prospectus. The prospectus includes details about loads and other fees. Investors can also learn about the objective of the fund, and the fund manager’s investment strategy.
The prospectus also includes details about the open-end fund’s past performance, including any losses or gains. This includes earnings each year and overall earnings since the fund began. Information on how to buy and sell shares in usually included. Potential investors should carefully read the prospectus before purchasing shares in an open-end mutual fund or bond fund.
Open-end funds are sometimes closed to cap the amount of money held in the fund. When an open-end fund is closed, new investors cannot purchase shares from the fund manager. An advantage to investing in open-end mutual funds is that, even when the fund is closed to new investors, existing investors are usually able to purchase additional fund shares.