Open-End Management Company

An open-end management company is a type of investment company responsible for the management of open-end funds. Open-end management companies manage both open-end mutual funds and exchange-traded funds (ETFs).

An open-end management company is a type of management investment company as classified by the Investment Company Act of 1940. Investment companies are classified into three basic categories: 1) face-amount certificate company 2) unit investment trust and 3) management (investment) company. All of these investment companies manage assets in investment products. Generally, investment companies must all follow rules and regulations enacted by the ’40 Act as well as the Securities Act of 1933 and the Securities Exchange Act of 1934.

Open-end management companies are most often associated with the management of open-end mutual funds. However, they also manage ETFs too. Vanguard is one example of an open-end management company. Its Vanguard Total Stock Market Index Fund is a popular strategy that is offered as both an open-end mutual fund and an ETF.

Open-end mutual funds are not traded on exchanges. Therefore, the open-end management company is responsible for distributing and redeeming all of the shares of open-end mutual funds offered in the market. Open-end mutual funds do not have a specific number of shares offered in the market.

These funds are sold and redeemed at their daily net asset value (NAV) per share. Investment company rules and regulations require transactions for open-end mutual funds to take place at their forward NAV. This means buyers and sellers can expect to transact at the next NAV following their transaction request.

Open-end mutual funds pool the money from investors in order to attain operational and management economies of scale. Open-end funds are managed to a broad range of investment objectives. They can deploy various types of strategies. They also manage assets across a wide range of market sectors and segments.

Open-end funds offer investors numerous share classes for which they can invest. They are structured to include retail investor shares and institutional investor shares. They also often issue special shares for certain types of investments such as retirement funds.

While the transactions of open-end funds are managed by their respective open-end management company and not on any exchange, investors may choose to deal with intermediaries. Fees and open-end management company fee structures are applied when seeking to transact an open-end fund through an intermediary. Full-service brokers and distributors will charge fees according to the management company’s sales load fee structure which is outlined in the fund’s prospectus. Investors transacting through a discount brokerage will pay lower fees and may face certain investment minimums.

ETFs are also offered by open-end management companies. ETFs also do not have a specified number of shares offered in the market. Therefore, the open-end management company can issue and redeem shares at their discretion.

ETFs differ from open-end funds in that they trade actively throughout the day on an exchange. ETFs also do not offer a range of share classes with different fee schedules. Investors buy ETFs through brokers or on brokerage platforms and they trade like stocks.

Open-end funds and ETFs do have many similarities. Both are pooled funds allowing for management and operational economies of scale. Both open-end funds and ETFs offer products managed to a wide range of investment strategies and objectives.