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What is a Closed Fund?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 26 July 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Closed funds are mutual funds that are currently not issuing shares to new customers. The shut down on issuing shares may be a temporary measure, or may be permanent. Generally a closed fund takes place when the mutual fund has grown too large.

When a mutual fund is declared to be a closed fund, the status does not impact the outstanding shares that are currently in circulation. Those shares may still be presented by the shareholder for redemption in accordance with the terms and conditions that would normally apply. In some cases, investors who currently own shares already in circulation may buy additional shares as they come available. However, new investors are not able to acquire any shares associated with a closed fund.

Managers of mutual funds normally take the step of closing a mutual fund when there is some concern about negatively impacting the current investment strategy employed with the fund. The concern may be that the mutual fund as currently structured will become impossible to manage if any further growth is achieved. In other instances, the fund managers may feel that any further expansion will result in harm to the integrity of the fund’s performance, and thus endanger the investments already made in the fund. The closed fund may function with some limited purchases of existing shares among current shareholders, or all buying activity may be suspended.

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A closed fund may be declared open in the event that the fund managers determine that the reasons for suspending the issuing of shares are no longer valid. When this occurs, existing shareholders are free to acquire a greater interest in the fund. In addition, new investors become eligible for participation in the fund, under the same terms and conditions that govern existing investors. Brokers and other financial professionals are able to access information about the current status of a mutual fund, and determine if is currently open or closed.

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