Legal Definitions - open-end fund

An open-end fund is a type of investment company, most commonly known as a mutual fund, that continuously offers new shares to investors and is obligated to buy back (redeem) existing shares from investors upon request. Unlike a closed-end fund, an open-end fund does not have a fixed number of shares. The price at which shares are bought or sold is based on the fund's net asset value (NAV), which is calculated daily. This structure allows investors to easily enter or exit the fund directly with the fund company itself.

• Example 1: Regular Retirement Contributions
  Sarah decides to invest $250 each month into a diversified stock fund for her retirement savings. Because this is an open-end fund, each time she makes a contribution, the fund issues new shares to her based on the current day's net asset value. The fund doesn't run out of shares, nor does it need to find another investor willing to sell shares to her; it simply creates new ones to accommodate her investment.

  Explanation: This illustrates the "open-end" nature where the fund continuously issues new shares to accommodate new investments, directly from the fund itself, at the daily NAV.

• Example 2: Withdrawing for a Major Purchase
  Mark has been saving for a down payment on a new home in a balanced bond and stock fund. When he finds the perfect house, he requests to withdraw a significant portion of his investment. As an open-end fund, the fund company is obligated to redeem his shares, paying him the current net asset value per share, even if no other investor is simultaneously looking to buy those exact shares. The fund liquidates some of its underlying assets to fulfill Mark's redemption request.

  Explanation: This demonstrates the fund's obligation to redeem shares upon an investor's request, allowing investors to exit their position by selling shares back to the fund at NAV.

• Example 3: Large Institutional Investment
  A university endowment decides to allocate $75 million to a specific emerging markets fund. Since it's an open-end fund, the fund manager can accept this large investment by issuing a corresponding number of new shares to the endowment at the day's NAV. This influx of capital increases the total assets under management for the fund, but doesn't require the endowment to purchase shares from existing investors in a secondary market; they buy directly from the fund.

  Explanation: This highlights the fund's capacity to continuously issue new shares to accommodate large investments, directly expanding the fund's size and asset base without a fixed limit on the number of shares.