What is an Open-End Management Company?
An open-end management company refers to an investment organization, which is accountable for the managing the open-end funds. Open-end management companies administer both open-end exchange-traded funds (ETFs) and mutual funds, and responsible for the management of open-end funds. For instance, Vanguard is an open-end management company.Summary
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An open-end investment company is engaged in issuing and redeeming, or purchasing back, the mutual funds’ shares it sponsors on a regular basis as per the demands of an investor. An open-end investment company pools funds, and it raises the funds through selling shares in a fund.
The fund manager of the company focused on investing in money market instruments, stock, bonds, or in the composition of different asset classes to meet the specific objectives of the fund. Though, the open-end company can put a break on selling new shares in a fund if the manager determines the fund has developed too big to do an additional assets investment productively. On the other side, a closed-end investment company always issue a limited number of shares at the time of creating a fund, and these shares traded on the secondary market.
How an Open-End Management Company Works?
An open-end management company is classified as a kind of management investment company by the Investment Company Act of 1940. The Investment companies are divided into three basic categories: Face-Amount Certificate Company, Unit Investment Trust and Management (Investment) company. All the classified investment companies are responsible for managing investment products’ assets.
Usually, investment companies have to follow all the rules and regulations established by the Investment Company Act of 1940 Act along with the rules and regulations set by the Securities Exchange Act of 1934 and the Securities Act of 1933. The open-end management companies are mainly related and responsible for the management of open-end mutual funds. Through, the open-end management companies also engaged in managing the exchange-traded funds (ETFs) too.
The open-end management companies deal with in Open-End Mutual Funds and Exchange-Traded Funds (ETFs). The open-end mutual funds are not indulged for the buying or selling on stock exchanges. For that reason, the open-end management company deals with the trading of open-end mutual funds, and responsible for issuing and redeeming all the open-end mutual funds shares which are provided in the market. There are no certain numbers of open-end mutual funds shares, which are offered in the market. The shares of the open-end mutual funds are issued and redeemed at their regular net asset value per share. Rules and regulations of an investment company need transactions for mutual funds (open-end) in order to occur at their forward net asset value (NAV) that says the buyers and sellers can anticipate carrying out at the next net asset value (NAV) as per their transaction request.
Open-end mutual funds raise the funds from investors to obtain economies of scale of their operational and management activities. The open-end management companies manage the open-end funds with a huge range of investment objectives by placing different types of strategies and manage assets across a wide range of market sectors and segments. Open-end funds provide various number of share classes to the investors.
Both institutional investor shares and retail investor shares are included in the structure of it, and frequently distribute special shares for specific kinds of investments like retirement funds. As the open-end funds’ transactions are taken care by its associated open-end management company and not managed by any stock exchange, an investor prefers to deal with intermediaries. The fee structures of an open-end management company are applicable when an investor is seeking to do transaction in an open-end fund with the help of an intermediary. The distributor or broker charge the fee as per the sales load fee structure of a management company which is stated in the prospectus of the fund.
The open-end management companies also provide Exchange-Traded Funds (ETFs). The Exchange-Traded Funds (ETFs) also not provided in the market with the certain number of shares. Hence, the shares are issued and redeem at the discretion of the open-end management company. Both Exchange-Traded Funds (ETFs) and open-end funds are different from each other as ETFs traded whole day on an exchange just like stocks, and do not provide a range of share classes with various fee schedules.
Investors purchase Exchange-Traded Funds (ETFs) with the help of brokers or by brokerage platforms. Though, both Exchange-Traded Funds (ETFs) and Open-end funds also have various similarities such as they are pooled funds, both provide products which are managed with different strategies and objectives of investment, and both allowed to obtain economies of scale of their operational and management activities.