Open-Ended Mutual Funds vs. Closed-Ended Mutual Funds — What's the Difference?
Edited by Tayyaba Rehman — By Fiza Rafique — Published on December 21, 2023
Open-Ended Mutual Funds continually issue and redeem shares based on demand, while Closed-Ended Mutual Funds issue a fixed number of shares that trade on an exchange.
Difference Between Open-Ended Mutual Funds and Closed-Ended Mutual Funds
Table of Contents
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Key Differences
Open-Ended Mutual Funds are investment funds that do not have a fixed number of shares. They continually issue new shares as investors buy in and redeem shares when investors sell out. Conversely, Closed-Ended Mutual Funds have a fixed number of shares which are not redeemable from the fund. Instead, they trade on stock exchanges much like individual stocks.
When it comes to liquidity, Open-Ended Mutual Funds offer higher flexibility. Investors can buy or sell their shares at the net asset value (NAV) from the fund directly at the end of the trading day. On the other hand, Closed-Ended Mutual Funds trade on exchanges, so their price can deviate from the NAV based on market demand and supply.
Pricing mechanisms differ between the two. Open-Ended Mutual Funds have their price determined once a day at the NAV, which reflects the total value of the fund's assets. In contrast, Closed-Ended Mutual Funds can trade at a premium or discount to their NAV during the trading day, based on investor sentiment and other market factors.
Open-Ended Mutual Funds usually don’t have a fixed maturity date, allowing investors to remain invested as long as they wish. However, Closed-Ended Mutual Funds often have a predetermined maturity date, after which the fund is liquidated, and the capital is returned to the investors.
Capital structure is another distinguishing factor. Open-Ended Mutual Funds can constantly grow as more investors buy into the fund. In contrast, Closed-Ended Mutual Funds have a fixed capital structure since they raise a specific amount of capital only once during the initial public offering (IPO) phase.
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Comparison Chart
Share Quantity
Unlimited
Fixed
Liquidity
High (redeemable)
Trades on exchange
Pricing
NAV (once daily)
Can deviate from NAV
Maturity Date
Typically none
Predetermined
Capital Structure
Can constantly grow
Fixed at IPO
Compare with Definitions
Open-Ended Mutual Funds
Open-Ended Mutual Funds allow for unlimited capital growth due to a flexible share quantity.
The appeal of Open-Ended Mutual Funds lies in their ability to adjust to the size of their investor base.
Closed-Ended Mutual Funds
Closed-Ended Mutual Funds are not directly impacted by investor redemptions.
Unlike Open-Ended options, investor selling doesn't shrink the size of Closed-Ended Mutual Funds.
Open-Ended Mutual Funds
Open-Ended Mutual Funds typically lack a set maturity date.
I prefer Open-Ended Mutual Funds for their open-ended investment horizon.
Closed-Ended Mutual Funds
Closed-Ended Mutual Funds are funds with a fixed number of shares that are traded on stock exchanges.
Sarah bought shares of a Closed-Ended Mutual Fund from the stock exchange.
Open-Ended Mutual Funds
Open-Ended Mutual Funds price their shares daily at the net asset value.
I always check the NAV when I want to invest in Open-Ended Mutual Funds.
Closed-Ended Mutual Funds
Closed-Ended Mutual Funds often come with a predetermined maturity date.
I chose this Closed-Ended Mutual Fund because it aligns with my 5-year investment plan.
Open-Ended Mutual Funds
Open-Ended Mutual Funds are investment vehicles that continually issue and redeem shares based on investor demand.
I invested in Open-Ended Mutual Funds because of their daily liquidity feature.
Closed-Ended Mutual Funds
Closed-Ended Mutual Funds raise capital only once during an initial public offering.
The Closed-Ended Mutual Fund had its IPO last year and hasn't issued new shares since.
Open-Ended Mutual Funds
Open-Ended Mutual Funds provide the convenience of buying and selling directly with the fund.
For ease of transactions, John chose Open-Ended Mutual Funds over other investment types.
Closed-Ended Mutual Funds
Closed-Ended Mutual Funds can trade at a price different from their net asset value.
It's intriguing to see the Closed-Ended Mutual Funds sometimes trade at a premium to their NAV.
Common Curiosities
How do Open-Ended Mutual Funds offer liquidity?
Open-Ended Mutual Funds allow investors to redeem shares directly with the fund at the net asset value.
How are shares of Closed-Ended Mutual Funds bought or sold?
Shares of Closed-Ended Mutual Funds are traded on stock exchanges similar to individual stocks.
Do Open-Ended Mutual Funds have a fixed maturity date?
Typically, Open-Ended Mutual Funds don't have a set maturity date, unlike many Closed-Ended Mutual Funds.
How do Closed-Ended Mutual Funds raise capital?
Closed-Ended Mutual Funds raise capital during an initial public offering and don't issue new shares post that.
Can Open-Ended Mutual Funds grow indefinitely?
Yes, Open-Ended Mutual Funds can grow as they can continually issue new shares.
Why might Closed-Ended Mutual Funds trade at a premium or discount?
Market sentiment, demand-supply dynamics, and other factors can lead Closed-Ended Mutual Funds to trade away from their NAV.
What is the primary distinction between Open-Ended Mutual Funds and Closed-Ended Mutual Funds?
Open-Ended Mutual Funds continuously issue/redeem shares based on demand, while Closed-Ended Mutual Funds have a fixed number of shares traded on an exchange.
Can the price of Closed-Ended Mutual Funds deviate from their NAV?
Yes, Closed-Ended Mutual Funds can trade at a premium or discount to their NAV based on market factors.
Can you purchase Closed-Ended Mutual Funds directly from the fund post-IPO?
No, after the IPO, Closed-Ended Mutual Funds' shares are only available on stock exchanges.
Are Closed-Ended Mutual Funds influenced by investor redemptions?
No, Closed-Ended Mutual Funds' size remains fixed regardless of investor buying or selling.
Is it easy to liquidate Open-Ended Mutual Funds?
Yes, Open-Ended Mutual Funds offer daily liquidity, allowing investors to sell their shares directly to the fund.
Are there any limits to the capital of Open-Ended Mutual Funds?
No, Open-Ended Mutual Funds can continually grow based on investor demand.
What happens when a Closed-Ended Mutual Fund reaches its maturity date?
The fund is typically liquidated, and the capital is returned to investors.
How often are Open-Ended Mutual Funds priced?
Open-Ended Mutual Funds are priced once daily at their net asset value.
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Written by
Fiza RafiqueFiza Rafique is a skilled content writer at AskDifference.com, where she meticulously refines and enhances written pieces. Drawing from her vast editorial expertise, Fiza ensures clarity, accuracy, and precision in every article. Passionate about language, she continually seeks to elevate the quality of content for readers worldwide.
Edited by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
