An open-end mutual fund that closes has reached a desired size and does not accept new money from clients, according to the Cohen & Steers website. A closed fund could close partially and only turn away new investors, or it could close entirely and stop accepting deposits from existing clients, as well. There are various factors than lead to the closing of an open-ended mutual fund, and there are likely to be different thresholds for small-and-large sized firms.
When an open end mutual fund decides to close its doors to new money, it is not necessarily an indication of poor performance. It is possible, however, for a fund to grow so large that performance is impeded, according to a 2009 article in "Forbes" titled "When Should Mutual Funds Close?." The article suggests that mutual funds investing in small capitalization stocks should not surpass $1 billion. Once a fund grows beyond a certain point, it's possible for a portfolio manager to no longer add value in keeping with the strategy of a fund.
Just because an open-ended mutual fund closes the portfolio to new investors once does not mean that the fund cannot open up once again. Joel Tillinghast oversees the Low-Priced Stock Fund at Fidelity Investments. The fund was closed in 2003 only to reopen to new investors in December 2008 under more favorable stock market conditions, according to "The New York Times." Another Fidelity open-ended portfolio, the Contrafund, was similarly closed and then reopened several years later.
When an open-end mutual fund closes, it could turn away money from new investors only. This was the case with TFS Capital in 2009. The fund was closed to new investors when it reached half-a-billion dollars in assets under management, although existing clients were still allowed to add new money. The head of the mutual fund told "Forbes" that if the fund reached $1 billion, he might stop accepting deposits from current investors, too.
A closed open-ended mutual fund is not the same as a close-ended fund. An open ended mutual funds sells units to shareholders who want to invest, and redeems units from investors who prefer to withdraw from an investment portfolio. Mostly, a close-ended mutual fund's units cannot be redeemed directly from the mutual fund firm. Instead, these shares trade similarly to individual stocks and are bought and sold on major stock exchanges.
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