Open-End Funds: Long-Term Drawbacks & Considerations

Investing in an open-end fund might seem attractive at first. However, when you examine this possibility, you will notice that there are several long-run disadvantages to this type of investment. Here are a few of the disadvantages that you should be aware of.

Lack of Growth

With an open-end fund, there is no limit to how many investors a mutual fund will take on. This might not seem like a bad thing at first, but it can actually hamper the growth of the fund. Smaller mutual funds have an easier time making quick changes and growing. Once a mutual fund gets to a certain point, the growth tends to slow down.

Fees

When you are investing in an open-end fund, there is a good chance that you will be paying for 12b-1 fees for the life of the fund. These are the fees associated with marketing expenses to get more investors into the fund. Therefore, you are taking part of your returns and giving it to the mutual fund company to help bring on more customers. This does not help you at all, but you are still paying for it. With a closed-end fund, this fee will no longer be necessary when they close the doors to new customers.