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Closed Fund Definition
A closed fund, otherwise called closed-ended fund is a mutual fund or collective investment that is closed to new investors once a certain number of shares have been issued.
A close fund issued a fixed number of shares to investors, these shares are irredeemable from the mutual fund, once the fixed number of shares have been issued, the fund is closed to other investors. The fund manager or investment advisor does not give in to pressures from investors, once the fund is getting too large to be effectively managed, it is closed by the manager.
A Little More on What is a Closed Fund
A Closed fund such as a mutual fund can be closed to new investors either temporarily or permanently. When this happened, new investment is no longer accepted from old investors and new investors. In a closed fund, existing investors are not permitted to buy additional securities are investments.
Fund managers often close funds when the investments or investors are getting too large to handle. A closed fund is otherwise called a closed-end fund. It is, however, important to know that close funds are not the same at closed mutual funds, both have specific differences.
Closed Fund Investments
There are different postures a close fund can take, sometimes, this fund can close to only new investors while in other cases or closes to both new and existing investors. When a fund closes to all investors, it means no new investments can be allowed.
Usually, funds announce their closing in order to enable the fund manager to effectively manage the fund’s operations. While investments already made before the closure are announced to stand and continue to yield increase, no new investment is allowed. A fund may also announce its closing when it is likely to be liquidated or merged with another fund. Funds do not close abruptly, notices are often served to investors telling them about the closing. The notice contains various options for the investors in the funds.
Factors Leading to a Fund Closing
A fund can close for a number of reasons, the major ones are;
- If a fund or fund company is merging with another company or liquidating.
- A decrease in demand for the new funds.
- Inactivity of a fund.
- Too much asset inflows until a fund which results in asset bloat.
- Non-compliance with funds rules outlined in the Investment Company Act of 1940.
Furthermore, different funds close for different reasons, in most cases, the reasons are not the same. Also, while some funds close temporarily, some close permanently to new investors and existing investors.
Reference for “Closed Fund”