Pricing Mechanics and Alternative Fund Structures

Unlike equities and exchange-traded funds that trade continuously at market-driven prices throughout the day, open-end mutual fund shares are priced only once per business day. This occurs after the major exchanges close (typically 4:00 PM EST). The purchase or redemption price is the fund’s net asset value (NAV):

Transactions submitted during the trading day are executed at the next calculated NAV. This pricing lag eliminates intraday trading capabilities and introduces execution latency.

Beyond the open-end fund, three other investment-company structures matter:

Closed-End Funds (CEFs)

CEFs issue a fixed number of shares through an initial public offering (IPO) that subsequently trade on secondary exchanges. Unlike open-end funds, CEFs do not issue or redeem shares daily at NAV. Consequently, their market prices fluctuate based on supply and demand, trading at a persistent premium or discount to their actual NAV. CEFs often employ structural leverage and target income-generating assets, making them highly volatile.

Interval Funds

Governed by Rule 23c-3 of the Investment Company Act, interval funds do not trade on secondary exchanges. Instead, they offer to repurchase a fixed percentage of outstanding shares (the rule permits no less than 5% and no more than 25%) at NAV at intervals of three, six, or twelve months. This structure allows the fund manager to invest in highly illiquid, high-yield assets (such as private credit or commercial real estate) without the risk of forced daily liquidations.

Business Development Companies (BDCs)

BDCs are specialized closed-end RICs designed to provide capital to small and mid-sized private companies. They offer public investors liquid access to private equity and private debt markets (e.g., via the index fund BIZD). A BDC that elects RIC treatment must distribute at least 90% of its taxable income — not to be “tax-exempt,” which it never is, but to earn the deduction for dividends paid that strips out entity-level tax. The result is a high yield taxed to you as ordinary income.

Unit Investment Trusts (UITs)

UITs hold a static, unmanaged portfolio of securities for a fixed maturity term. They do not have active managers, meaning the constituent basket remains locked from issuance until the trust’s termination date.