Definitions

load-fund

Open-end fund

An open-end(ed) fund is a collective investment which can issue and redeem shares at any time. An investor can purchase shares in such funds directly from the mutual fund company, or through a brokerage house.

Open-ended funds are available in most developed countries, however terminology and operating rules vary. For example in the U.S. they are called mutual funds, in the UK they are either unit trusts or OEICs (Open-Ended Investment Companies) and in most of Europe they are SICAVs.

A fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. Open-end funds raise money by selling shares of the fund to the public, much like any other type of company which can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most open-end funds, shareholders are free to sell their shares at any time, although the price of a share in an open-end fund will fluctuate daily, depending upon the performance of the securities held by the fund. Benefits of open-end funds include diversification and professional money management. Open-end funds offer choice, liquidity, and convenience, but charge fees and often require a minimum investment.

Fees

There may be a percentage charge levied on purchase or sale of shares--in this case, the fund is a "load fund"; if there are no such charges levied, the fund is "no-load". However, brokerages may charge commissions for the purchase of even no-load funds, and there might also be other fees associated with no-load funds, such as yearly maintenance fees in IRA accounts and redemption fees designed to discourage shareholders from jumping in and out of funds in an attempt at market timing.

Active management

Most open-end funds are actively managed, meaning that a portfolio manager picks the securities to buy, although index funds are now growing in popularity. Index funds are open-end funds that attempt to replicate an index, such as the S&P 500, and therefore do not allow the manager to actively choose securities to buy. These fees are commonly referred to as 12b-1 fees in U.S.

Net asset value

The price per share, or NAV (net asset value), is calculated by dividing the fund's assets minus liabilities by the number of shares outstanding. This is usually calculated at the end of every trading day.

Hedge funds

Hedge funds are typically open-ended and actively managed. However, their NAV is typically calculated monthly.

Examples

U.S. mutual funds:

See also

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