A registered representative is comparing open-end management investment companies (mutual funds) and closed-end management investment companies for a retail client. Which of the following statements regarding these fund structures are correct?
- Open-end mutual fund shares are continuously offered in primary market transactions, whereas closed-end fund shares typically trade in the secondary market after an initial public offering.Cevap
- Closed-end funds trade based on market supply and demand, allowing their shares to trade at a premium or discount to their Net Asset Value (NAV).Cevap
- COpen-end mutual fund shares trade throughout the trading day on national stock exchanges at market-determined prices.
- DClosed-end fund shares are continuously redeemed directly by the issuing fund company at the end of each trading day.
Cevap
The statements confirming continuous primary offerings for open-end funds versus secondary market trading for closed-end funds, as well as pricing relative to NAV based on supply and demand for closed-end funds, are correct.
Open-end investment companies continually sell new shares to investors in primary market transactions and stand ready to redeem shares at NAV. Closed-end funds launch with a fixed capital structure via an IPO, after which their shares trade on secondary stock exchanges where pricing is dictated by supply and demand, allowing shares to trade above (premium) or below (discount) NAV.
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Key structural and pricing differences between open-end and closed-end investment companies.