Open-End Funds: An Overview
An open-end fund is a pool of capital contributed by multiple investors with a shared investment objective, professionally managed by investment experts of the fund management company. The term “open-end” signifies that investments into the fund have no fixed maturity period, allowing investors to enter or exit the fund at any time.
Operational Functions of Open-End Funds:
An open-end fund typically invests in a diverse portfolio of securities. All open-end funds have predefined investment objectives, enabling the fund manager to steer the investment strategy best suited for the fund. Bond open-end funds often provide stable returns with lower risk, while equity open-end funds offer higher returns with higher risk.
Investors in Open-End Funds:
Investors purchasing fund certificates of open-end funds become shareholders of the fund. They deposit money into the fund for investments in securities such as stocks, bonds, certificates of deposit, and fixed-term deposits.
Profits from Open-End Funds:
An open-end fund generates profits through four primary channels:
- Appreciation in stock value.
- Receipt of dividends from stocks.
- Accrual of interest from bonds.
- Accumulation of interest from certificates of deposit or fixed-term deposits.
However, open-end funds can also depreciate in value during market declines.
Total Assets Under Management:
All money and investment portfolios belong to the investors, not the fund management company. Fund assets are allowed to be invested only in securities and other assets permitted by the state, and never into the management company itself.
Net Asset Value (NAV):
The NAV of an open-end fund is the total value of all fund assets minus total costs and obligations at a specific point in time. Open-end funds in Vietnam update and disclose NAV on their website at least once a week.
Fund Management Company:
The fund management company acts on behalf of investors to professionally manage and conduct investment activities of the open-end fund.
