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Open-end fund is a fund engaged in management of collective investments, investment in various assets in order to increase the fund’s property value. Thus, the investors buy a certain number of registered securities – units- depending on the desired investment amount.

All units, just like shares, have the same value and the fund’s profit is distributed among investors according to the number of shares they own. The higher the fund’s profit –its assets value – the higher the price for a single unit. One can withdraw funds in full amount by settling the units – selling them to the fund at the current rate.

Unlike exchange funds, an open-end fund is not a legal entity but a property complex controlled by professional managers.


Open-end funds classification

According to the time of the units purchase, there are:

  • Closed-end funds
  • Open funds
  • Interval funds

Closed-end fund sells shares only once because in order to join the fund investors one needs to buy a share of the current owner. Public funds sell shares to investors upon request and allow, without limitation, to deposit and withdraw funds. Interval funds suggest the possibility of repurchase of shares at certain times at least once a year.

In addition, mutual funds may be divided into several types depending on the structure of assets in which they invest.


Funds working with financial instruments:

  • Equity funds
  • Bond funds
  • Index funds
  • Money market funds
  • Product Market Funds


Funds working with real assets:

  • Real estate funds
  • Artistic values funds


Funds working on the leveraged finance market:

  • Loan funds
  • Mortgage funds
  • Rental funds


There are also:

  • Private equity funds that provide financial support to specific enterprises and companies
  • Venture capital funds focused on the purchase of shares of innovation enterprises and start-up projects
  • Funds of funds that invest in shares of other funds
  • Balanced funds that combine several types of portfolio assets


Advantages of Open-end funds

  1. Assets are managed by experienced professionals with reliable competence and qualifications.
  2. Due to the large total debt capital, the potential returns on investments in open-end funds are higher than in other investment instruments implying trust asset management, and much higher than the return on bank deposits and unallocated bullion accounts.
  3. Funds may apply the principle of diversification more widely and use all types of investment strategies compared to PAMM-accounts managers and frequent trustees.
  4. Investment and trading operations, performed by the fund, shall be tax exempt.
  5. Shares of open-end funds are highly liquid.


Disadvantages of Open-end funds

  1. Open-end funds rarely work with derivatives and options which reduces the use of aggressive investment strategies. The exception is the mixed investment funds.
  2. The investment management is fee paying; besides, the investors have to pay a fee for the issuance of shares, called a premium, and after the shares repayment a certain percentage, called discount, is held,. However, this disadvantage is offset by the profits received thanks to the manager’s competence.

3. The majority of open-end funds, operating with securities and real assets, involve making a profit only in the growing market.

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