THE SHOPPING MALL OF INVESTMENTS
upon the supply and demand of the market; they’re not tied to the net asset value (NAV) per share of the funds. Therefore, when the market price for a closed-end fund’s shares is greater than the NAV, the fund is trading at a premium. Likewise, when the fund’s shares are trading below the NAV, they are trading at a discount.
Net asset value—The true value of a share of a mutual fund. It is calculated by taking the total value of all assets and other securities of the fund, less any of the fund’s liabilities, and dividing that number by the number of the fund’s outstanding shares. NAV is valued on a daily basis.
Breakpoint—The dollar amount at which the investor is enti- tled to a lesser sales charge.
Rights of accumulation—Amount of money already invested in a mutual fund that has a front-end sales load. The sales charge is discounted based upon previous mutual fund pur- chases within the same fund or fund family.
12-b-1 fees—An annual sales charge taken from mutual funds for sales and marketing costs.
Open-end funds are the most common mutual funds. Unlike closed- end funds, they don’t limit the amount of shares. Rather, the number of available shares is constantly changing due to new investors pur- chasing shares and existing investors redeeming shares. When investors wish to purchase mutual fund shares, they are buying them from the company itself. This means that when investors want to redeem their shares, the company must be ready to buy them back from the individual.
Open-end funds’ share prices are derived from the most recent NAV of the shares. Net asset value per share is the total value of all the securities and other assets held by the fund, minus any of the fund’s liabilities. This resulting number is then divided by the num-