UNIT 02.01 - Open End vs Closed End Flashcards
Open-End or Closed-End?
CAPITALIZATION
Unlimited
Continuous offering of shares
Open-End
The answer is open-end, and here’s why:
Keyword: Capitalization
Open-End Funds (like mutual funds) have unlimited capitalization, meaning they can continuously offer new shares to investors. There’s no fixed number of shares—investors buy shares directly from the fund, and the fund issues new shares as needed.
In contrast, Closed-End Funds issue a fixed number of shares during an initial public offering (IPO) and then trade on an exchange like a stock. They do not continuously issue new shares.
Quick Memory Tip:
Open = Ongoing = Unlimited
Open-end funds = ongoing creation of shares = unlimited cap
Open-End or Closed-End?
CAPITALIZATION
Fixed
Single offering of shares
Closed-End
Open-End or Closed-End?
ISSUES
Common stock only
No debt securities
Permitted to borrow
Open-End
Open-End or Closed-End?
ISSUES
May issue common and preferred stock and debt securities
Closed-end
Open-End or Closed-End?
SHARES
Full or fractional
Open-end
Open-End or Closed-End?
SHARES
Full only
Closed-end
Open-End or Closed-End?
OFFERINGS AND TRADING
Sold and redeemed by the fund only;
continuous primary offering;
must redeem shares
Open-end
Open-End or Closed-End?
OFFERINGS AND TRADING
Initial primary offering
secondary trading OTC or on an exchange
Does not redeem shares
Closed-end
Open-End or Closed-End?
PRICING
Selling price is determined by formula in the prospectus
Open-end
Open-End or Closed-End?
PRICING
Current market value + commission
price determined by supply and demand
Closed-end
Open-End or Closed-End?
SHAREHOLDER RIGHTS
Dividends (when declared)
Voting
Open-end
Open-End or Closed-End?
SHAREHOLDER RIGHTS
Dividends (when declared);
voting;
preemptive rights
Closed-end
Open-End or Closed-End?
EX-DATE
Set by board of directors
Open-end
Open-End or Closed-End?
EX-DATE
Set by SRO
Closed-End
Open-End or Closed-End?
EX-DATE
Set by SRO
Closed-End
