All About Value Investing by Esme E. Faerber

Author:Esme E. Faerber
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2014-07-14T16:00:00+00:00

BASIC OPEN-END FUNDS

Open-end funds issue unlimited numbers of shares. Investors can purchase more shares from the mutual fund company and sell them back to the fund company, which means that the number of shares will increase or decrease, respectively. A closed-end fund issues a fixed number of shares; when all the shares are sold, no more are issued. In other words, closed-end funds have fixed capital structures.

Shares are bought in an open-end mutual fund at its net asset value (NAV), which is the market value of the fund’s assets at the end of each trading day minus any liabilities divided by the number of outstanding shares.

Open-end funds determine the market value of their assets at the end of each trading day. For example, a balanced fund, which invests in both common stocks and bonds, uses the closing prices of the stock and bond holdings for the day to determine market value. The number of shares of each of the stocks and the number of bonds that the fund owns is multiplied by the closing prices. The resulting total of each investment is added together, and any liabilities associated with the fund (such as accrued expenses) are subtracted. The resulting total net assets are divided by the number of shares outstanding in the fund to equal the NAV price per share. Table 10.1 shows how NAV is determined.

TABLE 10.1

How the Net Asset Value of a Fund Is Determined

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