Open-ended Funds vs Closed-end Funds

Posted on July 7, 2008. Filed under: -- Building Wealth, -- Money Help (in simple terms), -- Uncategorized | Tags: , , , , |


By Molly Greaves

Open-ended funds are the most popular. And, unless otherwise stated, you can assume that any fund you generally hear about is open-ended. An open-ended fund continuously issues new shares and redeems old shares on demand. So, when a fund is popular, you can buy into it because new shares are constantly created.

Closed-end funds are funds that issue a fixed number of shares. After the investors buy the shares, no more can be bought. It’s like saying “My seminar will only hold 5000 people, so anyone arriving after the first 5000 have been admitted will have to leave. Seminar closed.”

So why do people like closed-end funds? I like them mainly because it allows fund managers to know how much money they have to invest, where open-end can change. It gets tough to manage accounts where money comes in and out  all day, each day and you always have a different amount to work with. The problem though, is that these funds generally have a high minimum contribution to get an account going.

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