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Is An Open End Mutual Fund For You?

February 26, 2012 | Comments: 0 | Views: 122

The Open End Mutual Fund

There are many different types of investments out there, and an open end mutual fund is one of them. An open end mutual fund is an example of a collective investment scheme. In other words, it is a form of investing money with a group of other people. Investing with people rather than going at it alone provides the benefit of being able to hire a professional manager to head your investment, leading to better returns thanks to their advice. It's also economically smarter to share the cost of maintaining an investment with other people, and with more investors, there is more diversity, meaning less risk for everyone involved.

Mutual Fund Basics

What makes an open end mutual fund open ended is the fact that shares within the investment can be issued and redeemed at any time. Investors typically buy their shares straight from the fund rather than shareholders. Where this is different from a closed end fund is that closed end funds have all their funds issued at once, and then can be traded between investors afterward. Most developed countries will have ways for investors to access an open end fund, but the names of the funds and the way they are run sometimes vary. UK unit trusts and OEICS, as well as European SICAVs, are all equivalent to U.S. mutual funds, hedge funds, and exchange-traded funds.

Understanding Net Asset Value

The price of an open end fund is relative to the fund's next asset value (NAV), or price per share. This is directly proportionate to how well the fund has performed. The NAV is typically calculated at the end of every trading day, and is found by dividing the fund's assets, minus its liabilities, by the amount of outstanding shares. The average open end fund will be actively managed. This means that the account manager will be in charge of selecting securities to purchase. As of right now, index funds are currently increasing in their worth.

Load And No Load Funds

There is a chance that an open-end fund will have a charge that comes along upon purchasing a share. This fee is known as a front-end load by Americans, and an initial charge in the UK. There is a close-end load, which may be waived after the fund has been owned for several years. These charges are in place to cover costs responsible for paying commissions to advisers and brokers, and are referred to as "12b-1" fees in the U.S. Not all funds come with charges upon their purchase, however. Funds that come without them are known as "no load" funds.

Connor Swinney is the owner of the What Are Mutual Funds website. He created the website to be used as a resource for people who are looking for more information on Mutual Funds On The Internet or that would like to know how they can create a successful investment strategy.

Source: EzineArticles
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