What is the primary characteristic of open-end mutual funds?

The primary characteristic of open-end mutual funds is that they are bought and sold on demand at net asset value (NAV). Open-end mutual funds operate under a structure where investors can purchase shares directly from the fund itself, and the fund continuously issues new shares as investors buy in. Conversely, when investors redeem their shares, the fund will buy them back at the current NAV, which is calculated at the end of each trading day.

This mechanism allows open-end mutual funds to provide liquidity for investors, as they can enter and exit their investment at any time by transacting with the fund itself rather than needing a secondary market, as with other types of funds. This is a significant feature that differentiates them from closed-end funds, which do not issue or redeem shares after their initial offering and are typically traded on stock exchanges, meaning their market price can fluctuate based on supply and demand rather than reflecting the NAV at which shares are purchased and sold.

Understanding this structure is crucial for investors as it affects how they can manage their investments and realize gains or losses. The focus on NAV as the trading price highlights the nature of open-end mutual funds as continuously redeemable investments, making this characteristic fundamental to their operation.