Open-end index fund
Open-end index fund.
An open-end index fund operates like other open-end mutual funds, continuously issuing and redeeming shares based on investor demand. The main difference is that, as an index fund, its investment objective is to duplicate the performance of its underlying index.
Unlike an exchange traded fund (ETF), which also tracks an index but redeems shares only in exchange for corresponding baskets of securities, open-end index funds need cash to buy back shares that investors wish to redeem, or sell. If a fund must sell securities to meet redemption demands, the sale may generate capital gains or losses and cause the fund's return to deviate from the index return.
You buy and sell open-end index funds at their net asset value (NAV), which is determined at the end of each trading day. In contrast, ETFs may be traded throughout the day, and market forces beyond the fund's NAV can affect their prices.