Open-end investment company
Also known as: mutual fund, open-end fund, open-end management company
An open-end investment company, commonly known as a mutual fund, continuously issues new shares and redeems them on demand at net asset value. Shares are bought from and sold back to the fund itself, not traded on an exchange.
An open-end investment company is the formal legal name for a mutual fund. It is a management investment company, registered under the Investment Company Act of 1940, that pools money from many investors into a professionally managed portfolio. The "open-end" label refers to its capitalization: the fund continuously issues new shares to investors and stands ready to redeem existing shares on demand, so the number of shares outstanding changes every day.
Open-end shares do not trade in the secondary market. Instead, investors buy shares from the fund and redeem them back to the fund at the net asset value (NAV) per share — total assets minus liabilities, divided by shares outstanding — calculated once daily after the market closes. Under forward pricing, every order is filled at the next NAV computed after the order is received. Funds sold with a sales charge are purchased at the public offering price (POP), which is NAV plus the load; redemptions occur at NAV, and by law payment must be made within seven days.
This structure contrasts with a closed-end fund, which issues a fixed number of shares in an IPO that then trade on an exchange at prices above or below NAV. Open-end investors always transact at NAV-based prices, receive pro rata distributions of dividends and capital gains, and can typically buy fractional shares and reinvest automatically.
The Series 6 and Series 7 exams cover open-end company mechanics in depth — NAV, POP, share classes, and redemption rules — while the Series 66 tests mutual fund characteristics and how they compare with other pooled investments.
Key takeaways
- An open-end investment company is a mutual fund: it continuously issues and redeems its own shares.
- Shares are purchased and redeemed at prices based on NAV, calculated once daily, under forward pricing.
- Shares do not trade on exchanges — the only counterparty is the fund itself, and redemption proceeds must be paid within seven days.
- Closed-end funds differ: fixed share count, exchange-traded, and prices can deviate from NAV.
- The Series 6, Series 7, and Series 66 exams test open-end fund pricing, structure, and shareholder rights.