Lorraine J. Green, Contributor
GREEN
MUTUAL FUNDS are investment vehicles that pool money from many individual investors to purchase generally a variety of stocks and or bonds. When most of us use the phrase 'mutual fund' we are usually referring to an open-end mutual fund, but what is this really?
OPEN-ENDED BENEFITS
An open-end mutual fund is the type of mutual fund that issues shares to buyers on an ongoing basis, that is, the fund continues to sell shares to investors and will buy back the shares when the investors are ready to sell.
This is a major difference between the open-end mutual fund and the other type the closed-end mutual fund.
When an investor wishes to buy or sell shares of a closed-end fund, another investor must be located, who wishes to sell or buy these shares. With the open-end fund however, the fund simply issues the investor new shares if he or she wishes to buy and similarly, when the investor wishes to sell shares, the fund simply redeems those shares.
THE PRICE FACTOR
Another notable difference between the two funds is the share price.
When you buy or sell closed-end funds (which have a fixed number of shares), your shares are bought or sold at the market price, which is determined by supply and demand on the stock market, where they are publicly traded.
In contrast, the price at which an investor buys or sells shares of a open-end mutual fund is the Net Asset Value (NAV) of the assets under management at the close of a given business day.
The net asset value (NAV) of a mutual fund is simply its assets minus its liabilities. In other words, NAV equals the fund's worth. If a fund has assets of $50 million and liabilities of $10 million, it would have a NAV of $40 million.
IN SUM
Though both the open-end and closed-end mutual funds share the advantage of putting professional managers with experience and access to sophisticated financial research to work for you, the open-end mutual fund is much more flexible and often provides instant liquidity as the fund sells shares daily. You will generally be able to get a redemption request processed promptly, and receive your cheque within three to four days.
Open funds range in risk depending on their investment strategies and objectives, but still provide flexibility and the benefit of diversified investments, allowing your assets to be allocated among many different type of holdings.
Lorraine J. Green is wealth manager at NCB Capital Markets, contact her at
1-888-4WEALTH or info@ncbcapitalmarkets.com.
NCB Capital Markets Limited ("NCBCML") through its representative(s) has provided information to you on various financial products and services and investment opportunities for information and educational purposes only. While NCBCML has made every effort to ensure that the information provided to you is accurate and based on research and analysis that we have carried out or derived from sources that we believe to be accurate and reliable, NCBCML makes no representations or warranties about the accuracy, completeness or suitability for any purpose of the information published, and will not be liable for any loss which you or anyone else may suffer in reliance on the information we have provided to you.
