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Open or closed ended - Coggle Diagram
Open or closed ended
Closed ended
Funds operate on the basis of defined periods in which to invest and in which rights to redemption exist
Typically have initial subscription period which may last a day or longer, depending upon the method by which subscription is offered. During that open period, subscriptions may be received and shares/units issued
At the end of the open period, the right to subscribe will cease and the fund will be barred to new subscriptions
Closed ended fund investors do not typically have a right to redemption that they exercise but are instead subject to compulsory redemptions during specific periods, most commonly at cessation of the fund i.e distribute final proceeds and close the fund
Funds may create extraordinary redemption periods or may seek to close out investors by other methods such as tender offer or share buyback, but other redemption periods will be at the discretion of those managing the fund (i.e board, trustee or general partner)
Because investors do not have a right to exit the fund at will but are instead committing to a period of investment, closed ended funds will be created for defined periods of time to create certainty as to the longest term of retention of that investment
Scheme particulars may merit investors to approve extensions to the period for the purpose of orderly disposal of fund assets but will otherwise expect their holding in the fund to come to an end upon the expiry of the defined fund period
Investors will invest at a fixed price at the launch of the fund, any open periods subsequent will be offered at a common price based upon the prevailing NAV of the fund and taking into account nay other rights attaching to the shares to be issues or any equalisation that may be required to bring those shares to a par with those already in existence
Shares may be sold outside of specified redemption periods on the secondary market. This may be through a listing (utilising a stock exchange or other trading platform) for public funds or by other means such as a matched trades basis on a private market
Open ended
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The size of the fund is dependent upon the monies invested (AUM) rather than any maximum limit being applied
May invite daily, weekly, monthly etc periods for subscribing / redeeming with applications received by the fund being pooled until the next dealing / redemption period
Investors have more freedom to invest and exit the fund at permitted intervals, so tend to be created for less defined terms than closed ended funds
Lifespans based more on the managers ability to continue to invest funds in accordance with the fund's stated objectives
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Must balance the inflows and outflows of investor capital, manager will need to retain cash reserves to meet redemptions which include allocating a specific cash reserve or having the ability to quickly liquidate assets to meet outflows
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