Open-End Fund

Definition: The Open-End Fund is the type of mutual fund, that has no restriction on the number of units the fund issues. In other words, an investor can issue and redeem its shares continuously, as there is no limit on the number of units the open-end fund will issue.

The Open-End Fund is convenient for the investors since it issues as many shares as required by them and also provides the facility of easy buy-back in case the investors want to sell their shares.

An open-end fund does not trade on an exchange rather they are priced at per share Net Asset Value (NAV), which is calculated at the end of each business day. The NAV for each unit of the mutual fund is calculated as:

NAV = Fund’s total net asset value / number of fund shares outstanding.

The share capital of an open-ended fund keeps fluctuating because of the continuous issue and redemption of the number of outstanding units in the fund. The size of the fund expands when more units are sold than are repurchased as more money flows in. On the other hand, when more units are repurchased, the fund size reduces due to the outflow of money from the fund house.

The open-end fund is not obliged to sell units everytime, if the management feels that it cannot handle the funds efficiently, can stop new subscriptions and may start repurchasing its units to have an optimal control over the size of the fund.

Leave a Reply

Your email address will not be published. Required fields are marked *