Types of Funds
Three types of structures operate as investment companies: open-end funds, closed-end funds, and unit investment trusts. Although only open- and closed-end funds are offered in the Bahamian Dollar market, several other types of funds are commonplace elsewhere.
Unit Investment Trust (UIT)
These structures operate similarly to an open-end mutual fund. How-ever, they differ in several im-portant ways:
- legally, they are es-tablished as trusts, as the name im-plies, and are governed by a trust deed;
- from an investment per-spective, they are typically passive in nature and do not actively trade securities;
- they offer investors units rather than shares;
- they are typically established with a predetermined termination date.
An investment company that offers shares on a continuous and unlimited basis and allows for the redemption of shares by shareholders on a scheduled basis.
An investment company characterized by the initial offering of its shares only during a speci-fied period of time. Thereafter, the fund is closed with trading of its shares conducted through an exchange, usually at a premium or discount to the fund’s net asset value
Exchange Traded Fund (ETF)
These funds are the new kids on the in-vestment block, having made their debut only 20 years ago, but today rep-resent more than $2.5 trillion of overall US investment company assets. Typically established as an open-end investment company, an ETF none-theless trades on stock exchanges at market-determined prices, just like a stock or bond. Although they typically mirror a portfolio of securities—such as an global equity index or a basket of energy stocks—they trade like an individual security and can be bought and sold throughout the day.
Closed-End funds occupy the other end of the Col-lective Investment Scheme spectrum, only offering a predetermined num-ber of shares for sale for a specified period of time.
As the name indicates, the fund then “closes” and any investor who wishes to purchase shares must do so from an existing investor in the sec-ondary market through an Exchange, often at either a discount or premium to the Net Asset Value of the fund itself (ie-the net value of the underlying portfolio of assets the fund owns).