Open-end fund
An open-end fund is a fund, most commonly a traditional , that continuously issues new shares to investors and redeems existing shares back from investors, at any time, at a price based on the fund's . This is the structure most people picture when they think of a standard , and it stands in contrast to a , which issues a fixed number of shares that then trade among investors on an exchange instead.
Because an open-end fund must stand ready to sell new shares or buy back existing ones from investors every business day, its grow and shrink continuously as money flows in and out, and the manager has to keep enough on hand, or be able to sell holdings quickly enough, to meet redemption requests. Shares are always transacted directly with the fund itself at that day's , calculated once after the market closes under the fund's , rather than at a separately negotiated market price the way a or share would be.
This structure means an open-end fund's share price should always closely reflect the actual value of its underlying holdings, since shares are created and redeemed directly at rather than traded at whatever price a buyer and seller happen to agree on. The tradeoff is that heavy redemptions during market stress can force a fund manager to sell holdings at inconvenient times to raise cash, something are structured to handle differently through their mechanism.