how an open end management company works
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 all of these investment companies manage assets in investment products generally investment companies must all follow the rules and regulations enacted by the 1940 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 open end funds are open meaning that they can continually bring on new investors and new investment capital rather than being closed at some point where they no longer bring on new investors or capital all capital is pooled from the various investors shares are issued as long as investors are willing to buy and are bought and sold at their net asset value nav open end funds are an easy way to gain exposure to financial markets in a diversified way with a specific investment objective types of open end management companiesopen 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 numerous share classes for investors 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 and as characteristics of such funds do not have a specified number of shares offered in the market therefore the open end management company can issue and redeem shares at its discretion etfs differ from open end funds in that they trade actively throughout the day on an exchange like stocks they do not offer a range of share classes with different fee schedules but rather investors buy etfs through brokers or on brokerage platforms total net assets of u s registered mutual funds worldwide in 2020 1etfs are passively managed funds managers of etfs select a specific benchmark to replicate and purchase the stocks listed in that benchmark for example the s p 500 this allows investors exposure to a large number of shares in the market without having to purchase the individual shares themselves and because etfs are passively managed they typically have low expense ratios 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 