Open-End Fund
An investment fund that continuously creates and redeems shares at net asset value on demand, with no fixed number of shares outstanding.
What is Open-End Fund?
An open-end fund continuously issues new shares to investors who want to buy and redeems shares from investors who want to sell, pricing all transactions at the fund's net asset value (NAV) calculated at the end of each trading day. This structure means the fund has no fixed share count — new investor demand creates new shares, and redemptions cancel shares. Traditional mutual funds are the most common type of open-end fund. Exchange-traded funds (ETFs) use a modified open-end structure with authorized participants creating or redeeming large share baskets (creation units) to keep ETF market prices close to NAV through arbitrage. The open-end structure contrasts with closed-end funds, which issue a fixed number of shares that trade on exchanges at prices that may deviate significantly from NAV. Open-end funds must hold sufficient liquidity to meet daily redemption requests, which constrains managers from holding illiquid assets.
Example
When 10,000 investors each buy $1,000 worth of the Vanguard 500 Index Fund (a mutual fund) on the same day, Vanguard creates new shares equal to the $10 million in new money, buys the underlying S&P 500 stocks in proportion, and issues shares to investors at NAV. When those investors later redeem, Vanguard sells stocks and cancels shares. The fund can theoretically grow to trillions (the Vanguard 500 fund has over $1 trillion in assets) because new shares are created on demand.