Open Ended Funds

By: EconomyWatch   Date: 23 November 2010

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Open ended funds:

Open ended funds also called open ended mutual funds, is the most common type of mutual fund available in the financial market.

Established by a mutual fund company, open ended funds are evaluated by the mutual fund company.

The open ended funds are also evaluated by external evaluating agents. The mutual fund company assures that the issuing fund, or the fund that will be refund will be in the form of fund unit value.

This implies that the investment of the funds are to be evaluated as per "fair market" price. "Fair market" price is the ultimate or the closing valuation in the market of the public listed securities.

Assets of open ended funds are kept aside as securities in the money market as well as short term investment. This step is taken in order to make available the open ended funds for repurchase.

Majority of the open ended funds are invested in the "liquid securities".

This denotes that open ended funds can generate cash by disposing off the securities almost equivalent to a value used for evaluations.

Documentation of open ended funds allows for the temporary removal of unit repurchases( redemption) under "extraordinary conditions" like major interventions in the financial market or the demand to redeem funds within a short period.

Illiquid investments face restriction by the government regulation body because illiquid investment are not active in the public markets and cannot be sold off within a short period .

One important factor with regard to open ended funds is the evaluation of investments which are illiquid and do not trade so frequently.

The mutual fund company evaluates the funds retentions end of the day and totals up.

The amount to be owed is deducted, whereas, the amount entitled to receive is added up. The net amount is then divided by the units number scheduled to be the value of the unit for the same day.

The purchase of units as well as the selling of units will take place according to the calculated rate or value.



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