Mutual Funds (Open-End)
Investment companies that continuously issue and redeem shares at net asset value (NAV); orders are priced at the NEXT calculated NAV (forward pricing), and shares are redeemed by the fund itself, not traded between investors.
NAV = (assets − liabilities) ÷ shares outstanding, computed after the market close. Funds offer diversification and professional management under the Investment Company Act of 1940, which also defines the open-end/closed-end/UIT structures.
The exam’s favorite tell is pricing: a fund share transacting at NAV is open-end, while a price away from NAV signals a closed-end fund or an intraday ETF quote. Under forward pricing (Rule 22c-1), a midday order gets the next NAV computed after receipt, never the last printed one — this is what blocks late trading (market-timing is curbed separately, via fair-value pricing and redemption fees). Don’t confuse open-end shares with ETFs: open-end shares cannot be sold short, bought on margin at purchase, or traded intraday — that’s the #1 error.
Under §18(f), open-end funds issue only one class of common stock (no preferred, only limited bank borrowing), whereas closed-end funds may issue preferred and debt and use more leverage. The public offering price is NAV plus any sales charge — not NAV itself — and a mutual fund quotes a single forward NAV, not a continuous bid/ask. Memory hook: “open-end = open to new shares.”
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