Closed-end and Open-end Funds

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As we mentioned in previous articles, we know that our government only represents about 30% of our retirement income, the company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. Closed-end and open-end funds are one of many choice that have been appeal to many investor for assets diversification and professional management. In this article we will discuss characteristics of closed and open end funds

1. Close end fund
a) Offered by professional fund companies with guaranteed professional management.
b) It trades as a single stock in the public stock exchange with buy and sell commission or fee.
c) Number of units are known. It cannot offer any more shares if the fund is closed.
d) Closed end fund contains only number of stocks.
e) Some closed end may invest in some regions in the world, such as the Russia closed end fund, China closed end fund, and Japan closed end fund.
f) Closed end fund go up and down every day depending the demand of investor. Sold of the fund may result of capital gain or loss and is taxable in the same year.

2. Open end fund
a) Open end funds can issue more units if needed.
b) It is not traded in the stock exchange.
c) Stocks or bonds in the fund can be sold or new issues may be bought depending on professional manager who manage such funds.
d) It is sold by financial institutions, stock dealers, or mutual fund agencies on behalf of fund companies through financial advisers, and life insurance agents.
e) There are many types of open end funds such as bond funds, mortgage security funds, real estate funds, and specialty funds.
f) Any gain or loss is taxable in the same year, if the units of such funds are sold.
Most popular open end fund in today's market is a balance fund which contains bonds and stocks of many blue chip companies. Under normal circumstances, the fund carries 50% of bonds including short and long term bonds with AAA rating by Standards and Poor, and 50% of stocks. Depending on the cycles of the economy, fund managers may adjust percentage of bonds and stocks holding in the fund, sometimes it reaches 70% stocks and only 30% bonds.

I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:

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