Examining types of fund structures

March 23, 2023

Discover the similarities and differences between closed-end mutual funds, interval funds and exchange-traded funds.

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 (ETFs). Learn more about these types of fund structures and compare their characteristics.

Fund definitions

Closed-end mutual fund: Registered with the SEC, a closed-end fund generally issues a fixed number of shares that aren’t 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.

Interval fund: A type of registered closed-end fund that doesn’t trade on the secondary market but whose shares may be continuously offered, up to a preset maximum amount, and are subject to periodic repurchase offers by the fund at a price based on net asset value.

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. Interval funds can invest in illiquid assets as long as sufficient liquidity is maintained during redemption periods.

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

Whether you’re interested in closed-end mutual funds, ETFs, interval funds or others, visit us at usbank.com/globalfundservices to learn how we can help support your growth.

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