Open-Ended Funds: Key Features and Benefits

Open-Ended Funds

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Question

Which of the following is/are true about open-ended funds?

I. Shares of the fund trade on an exchange.

II. Shares of the fund can be redeemed at NAV, with or without redemption fees.

III. It issues shares as and when demanded by investors bringing in additional funds.

Answers

Explanations

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A. B. C. D. E. F. G.

D

Open ended funds are mutual funds which buy and sell shares as and when demanded by investors. These funds may or may not have sales and redemption charges.

Open-ended funds are a type of mutual fund or exchange-traded fund (ETF) structure. Let's analyze each statement to determine which options are correct:

I. Shares of the fund trade on an exchange. This statement is true. Open-ended funds are typically traded on an exchange, which means investors can buy and sell shares of the fund throughout the trading day at market prices. This feature provides liquidity and allows investors to enter or exit the fund at any time during market hours.

II. Shares of the fund can be redeemed at NAV, with or without redemption fees. This statement is true. Open-ended funds allow investors to redeem their shares at the net asset value (NAV) of the fund. NAV is the total value of the fund's assets minus any liabilities, divided by the number of outstanding shares. When investors choose to redeem their shares, they will receive the NAV per share, which represents the underlying value of the fund's assets at the time of redemption. Some open-ended funds may impose redemption fees to discourage frequent trading and to cover administrative costs associated with redeeming shares.

III. It issues shares as and when demanded by investors bringing in additional funds. This statement is true. Open-ended funds have the ability to issue new shares as investors demand them. This means that when investors want to invest in the fund, the fund manager can create new shares and allocate them to the investors. This process allows the fund to expand its asset base and accommodate new investments. The issuance of new shares is typically done at the current NAV.

Based on the analysis of each statement, the correct answer is: G. I, II & III (I. Shares of the fund trade on an exchange. II. Shares of the fund can be redeemed at NAV, with or without redemption fees. III. It issues shares as and when demanded by investors bringing in additional funds.)

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