Generally, funds can be divided into two types: closed-end and open-end. What do these terms mean and how do they affect investors?
According to Investopedia,
“An open-end fund is a type of mutual fund that does not have restrictions on the amount of shares the fund can issue. The majority of mutual funds are open-end, providing investors with a useful and convenient investing vehicle. When a fund’s investment manager(s) determine that a fund’s total assets have become too large to effectively execute its stated objective, the fund will be closed to new investors, and in extreme cases, will be closed to new investment by existing fund investors.
(Investopedia Definition Link)
A closed-end fund is organized as a publicly traded investment company by the Securities and Exchange Commission (SEC). Like a mutual fund, a closed-end fund is a pooled investment fund with a manager overseeing the portfolio; it raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
(Investopedia Definition Link)”
Comparison of closed-end and open-end funds
| Fund type | Open-End | Closed-End |
| Sales channel | Fund houses | Stock Market |
| Number of units in circulation | Theoretically unlimited | Fixed |
| Cost of entry | Sales charge | Brokerage fee and stamp duty |
Further details
In Malaysia, mutual funds that are offered by fund companies are all open-end. There is no limit on the number of units that can be issued. In fact, the fund managers can keep increasing the number of units in circulation if there is continuous demand.
Contrary to open-end funds, closed-end funds have a fixed number of units and generally, the number remains constant. Currently, there is only one such fund in Malaysia according to Securities Commission. The fund is icapital.biz Berhad (ICAP). According to its website (Link), it is a RM140 million closed-end fund, listed on the Main Board of Bursa Malaysia in 2005. Its manager is Capital Dynamics Asset Management Sdn Bhd and its advisor is Capital Dynamics Sdn Bhd. This fund invests in Main Market and ACE Market of Bursa Malaysia.
Both types of funds pool investors’ fund and attempt to produce respectable returns from them. I am sure most of us are familiar with mutual funds due to the widespread marketing. For closed-end fund, it is more like stock. You trade the fund through brokerage in Bursa Malaysia instead of with agents/platforms. Generally speaking, the cost to acquire an open-end fund is more expensive, on a dollar-to-dollar basis.
In summary, the nature of these two types of fund is the same. The differences are of minor importance to us because the most important thing is the performance of a fund. Due to the lack of closed-end fund in Malaysia, mutual funds might be more useful to average investors like us. We can choose mutual fund that fits our needs. If you are interested in mutual fund, I recommend you to check out a platform known as Fundsupermart (Link) for its low sales charge.
