What is the difference between an open-end fund and a closed-end fund?
A closed-end fund is issued with a fixed number of shares and they generally trade on a stock exchange. As with stocks, to purchase a unit of a closed-end fund, you would be buying from a seller and vice versa if you were selling. In addition, you would pay brokerage commissions on both transactions. Most of the mutual funds available are open-end funds which means that there is no limit on the number of units the fund can sell, and the fund will always redeem units you hold upon your instructions. Generally, investors purchase open-end funds directly from the mutual fund company or through a mutual fund distributor. The distributor can be your full-service broker, your financial planner, the fund company itself or a direct investing firm such as BMO InvestorLine. Open-end funds may sometimes be “closed” to new purchasers because the fund managers believe that the current size of the fund is optimal to manage and to maintain investment performance.
