Examining in-demand fund structures

Comparing closed-end mutual funds, interval funds and exchange-traded funds

Tags: ETFs, Funds, Mutual funds
Published: March 10, 2020

The dynamic nature of the investment industry encourages managers to continually assess products that meet investor preferences. Recent investor trends include the movement toward closed-end mutual funds, interval funds and exchange-traded funds. Use the table below to learn more about these in-demand fund structures and compare their characteristics. ­­­


Examining in-demand structures - infographic
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What is...

A closed-end mutual fund: Registered with the SEC, a closed-end fund generally issues a fixed number of shares that are not redeemable from the fund. They have similar compliance testing as open-end funds but are allowed to hold a greater percentage of illiquid securities in their investment portfolios.

An interval fund: A type of registered closed-end fund that does not trade on the secondary market but whose shares may be continuously offered and are subject to periodic repurchase offers by the fund at a price based on net asset value.

An exchange-traded fund: An open-end fund registered under the 1940 and 1933 Acts that requires exemptive relief from various rules. Authorized Participants (AP) direct share activity on an exchange through creations and redemptions. Once the AP receives the ETF shares, the AP is free to sell the ETF shares in the secondary market to individual investors, institutions or market makers in the ETF.

 

Portfolio

Closed-end mutual fund

May be invested in equities, bonds and other securities with no limit on illiquid securities

Interval fund
Typically alternative strategies, investor assets are pooled into an investment portfolio with no limit on illiquid securities

Exchange-traded fund

Typically represents a basket of securities designed to mirror a specific index (passive) or actively managed portfolio, daily disclosure typically required for portfolio holdings

 

Valuation

Closed-end mutual fund

Traded in an open market with prices determined by supply and demand forces, traditionally transacted on an exchange

Interval fund

Subscriptions and redemptions limited to predetermined frequency transacted at NAV

Exchange-traded fund

Daily NAV with intra-day trading at market price

 

Tax reporting

Closed-end mutual fund

Typically taxed as RIC (1099) but could also be taxed as a corporation (1099) or partnership (K-1)

Interval fund

Typically taxed as RIC (1099) but could also be taxed as a corporation (1099) or partnership (K-1)

Exchange-traded fund

Typically taxed as RIC (1099) but could also be taxed as a corporation (1099) or partnership (K-1)

 

Sample investor markets

Closed-end mutual fund

Retail and institutional investors

Interval fund

Retail and institutional investors or through private offering to accredited investors

Exchange-traded fund

Retail and institutional investors

 

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