What does it mean when a mutual fund is closed?
closed to new investors?
Answers
161 points
DSWhite answered 5 months ago …
Closed mutual funds, sometimes referred to as Closed-ended funds, are financial securities that are traded on the stock market. Once they are issued, and holders must sell their units on the stock market to receive their funds back.
Read more from DSWhite flag as abuse great answer
269 points
stocktraderdan answered 5 months ago …
When purchasing from an open fund, you purchase through the mutual company directly and the fund manager issues new shares for the cash. The money you give to the fund manager is then used to buy more securities at his whim or is stored as cash for the future.
When purchasing shares of a closed end fund, you are purchasing shares from an existing fund shareholder, not the fund manager. No new shares are issued. Since you are buying from an existing shareholder you would purchase your shares through a stock broker, similar to buying stocks, instead of a mutual fund manager.
Pros:
You may be able to purchase below NAV.
The fund is more manageable for the fund manager.
Cons:
It may always stay below NAV.
The fund manager is saying he has more money than he knows what to due with.
You may or may-not be able to buy more shares directly from the fund manager.
Most funds don't charge for purchase fee. When buying a closed end fund you usually have to pay a brokerage fee.
These are just a few pros/cons. Fees may also apply for early redemptions and other reasons. Management fees may also be higher than open funds.
Hope it helps.
2547 points
Oldman answered 5 months ago …
When an open-ended mutual fund is closed, such as happened with Fidelity's Low-Priced, or Contra or Magellan or Growth Company, or New Millenium, no new accounts could be opened...NO NEW INVESTORS. In other companies, such as Longleaf, their International fund has been closed for a long time; similarly with Mathews Asia Pacific Equity Income...
It usually occurs when the OPEN_ENDED mutual fund management team has so much cash and so few investment possibilities, that its FUNDAMENTAL purpose may be violated if it continues to take in new money and buy "other stuff". Fundamental = the legal department's interpretation of the SEC filing about the nature and type of investments that would be made by the mutual Fund's original registration, i.e., not more than x % in any one company or industry or country; not more than y% in cash or bonds (if its purpose was to buy stocks) etc., which can be seen in the prospectus.
2547 points
Oldman answered 5 months ago …
After I posted the answer about closed mutual funds, i remembered some loopholes: For Taxable accounts, one can sometimes get a list of names from the account services provider of those who are selling shares and arrange to buy some or all of the shares sold; that's how financial advisors get some clients into Closed funds.
Ffor certain tax-sheltered accounts, such as 403(b) accounts, and possibly 401K and 457 accounts, additional deposits are allowed and new positions in commercially "closed-off" funds are allowed. For many years after Magellan was "closed" to new investors, the 403(b) accounts at my employer were able to put in new money, and new positions were allowed. It depends on the sheltered plan's documents.
More from this Category
Does your credit score go up by paying down debt slower?Asked by Intern in Personal Finance 2 days ago
