How Are Closed Managed Investment Accounts Different From Open?

Managed investment accounts that are available to public customers include both open and closed-end funds. These types of investment company shares, as defined in the Investment Company Act of 1940, provide different advantages to investors who are looking for the benefit of participating in the market across different asset classes and securities types without having to invest the same level of capital as institutional and high net-worth investors.

Open-End Funds

Open-end investment accounts are also known as mutual funds. The characteristics of an open-end or mutual fund are that the shares of the fund are continuously offered. Shareholders that purchase a mutual fund are able to buy and sell shares directly with the fund, which is responsible for honoring redemption requests. The fund holds the assets in trust for the benefit of shareholders and issues and redeems shares based on the net asset value (NAV) and public offering price (POP) of the fund, which represents the bid-ask price and spread.

Closed-End Funds

Closed-end funds are publicly-traded mutual funds that are offered to the public via an initial public offering (IPO) similar to new issues of a company’s stock. The shares trade on an exchange such as the New York Stock Exchange and are priced based on the movement of the market. Where a mutual fund charges a sales charge, which is the difference between the POP and NAV for the fund, the publicly-traded fund charges a commission, which is the mark-up over its trading price on the exchange.

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