Feeling Safe With Open-End Stocks

by David Jenyns on July 18, 2008

When the phrase “open-end” was first used, apparently it meant merely that a company was continuing to issue additional shares of its stock, and to redeem shares, and that the total number of shares outstanding might rise or fall.

But the meaning of “open-end” has grown to include all of the laws, regulations, and customs that distinguish what are now the principal group of American investment companies from the older type called “closed-end,” as well as from other corporations aside from investment companies. “Open-end” is a legal expression; “mutual fund” is the popular label with the same meaning.

To anyone familiar with investing in such forms as a U.S. savings bond, a bank savings deposit, a savings and loan association membership, or a life-insurance policy, the idea of “open-end” is so commonplace that he may think, “Of course! Why not?” But in corporate stock, the standard practice has been quite the opposite.

The first open-end investment company was started in 1924, and not until 1942 did this type begin the growth that has raised the number of companies and the assets of the group to be several times as large as in the closed-end group.

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