Primary Structures of Mutual Funds

Primary Structures of Mutual Funds

Fund structures 

primary structures of mutual funds: open-end fundsunit investment trusts, and closed-end fundsExchange-traded funds (ETFs) are open-end funds or unit investment trusts that trade on an exchange.

Open-end funds 

Open-end mutual funds must be willing to buy back (“redeem”) their shares from their investors at the net asset value (NAV) computed that day based upon the prices of the securities owned by the fund. In the United States, open-end funds must be willing to buy back shares at the end of every business day. In other jurisdictions, open-funds may only be required to buy back shares at longer intervals. For example, UCITS funds in Europe are only required to accept redemptions twice each month (though most UCITS accept redemptions daily).

Most open-end funds also sell shares to the public every business day; these shares are priced at NAV.

Most mutual funds are open-end funds. In the United States at the end of 2016, there were 8,066 open-end mutual funds with combined assets of $16.3 trillion, accounting for 86% of the U.S. industry.

Closed-end funds 

Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering. Their shares are then listed for trading on a stock exchange. Investors who want to sell their shares must sell their shares to another investor in the market; they cannot sell their shares back to the fund. The price that investors receive for their shares may be significantly different from NAV; it may be at a “premium” to NAV (i.e., higher than NAV) or, more commonly, at a “discount” to NAV (i.e., lower than NAV).

MORE INFO