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Open-end fund

A fund whose share count expands and contracts with investor demand, since it creates new shares for buyers and cancels shares on redemption.

Open-ended structures give investors a claim on the fund's assets at net-asset-value rather than at whatever price another buyer will pay. Most mutual funds and ETFs are open-ended.

The structure creates a liquidity mismatch wherever the fund's holdings are less liquid than the redemption terms it offers. A daily-dealing fund holding corporate bonds, property or small caps promises liquidity it does not have when everyone asks at once. Several property funds have suspended dealing for exactly this reason.

Tools used to manage that mismatch include swing pricing, redemption notice periods, cash buffers and in extreme cases suspension. Read the dealing terms before assuming daily liquidity is guaranteed. See closed-end-fund and interval-fund for structures that handle it differently.

Related: mutual-fund, closed-end-fund, interval-fund, net-asset-value, liquidity, redemption-gate

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Bid-ask spread in an order bookSell orders stacked above buy orders with a gap between the best of each.SELLERS (asks)50.0690050.051,40050.0460050.011,10050.002,30049.99800spread = 0.03BUYERS (bids)
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.

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