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Monday, April 7, 2008

What is an Open-end Unit Trust?

An open-end fund does not have a fixed pool of money. The fund manager continuously allows investors to join or leave the fund. The fund is set up as a Trust, with an independent trustee, who has custody over the assets of the trust. Each share of the trust is called a Unit and the fund itself is called a Unit Trust. The portfolio (pool) of investments of the Unit Trust is (normally) evaluated daily by the fund manager on the basis of prevailing market prices of the securities in the portfolio; this market value of the portfolio is divided by the number of Units issued to determine the Net Asset Value (NAV) per Unit. An investor can join or leave the fund on the basis of the NAV per Unit. However, the fund manager may have a small charge called “load” added to the selling price or deducted from the redemption price of the Units so as to cover distribution costs. Under the Pakistan law, an open-end fund is set up under the Non Banking Finance Companies Rules.

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