Why funds close to new investors

Every now and again, fund management companies decide they do not want any more money invested in a particular fund and take the decision to ‘close’ it to new investments. This shouldn’t be confused with a fund company deciding the fund should cease to exist – they simply don’t want the fund to get any bigger.

What is a fund closure?

Most of the time, fund companies will ‘soft close’ a fund. The definition of a soft closure can vary. However, in the majority of cases, it is when new investors cannot invest in the fund and a ‘prohibitive’ initial charge and/or a much higher minimum investment (a sum of money out of reach of most investors) is introduced to dissuade existing investors putting more money into the fund.

The exception is usually monthly savings, which are allowed to continue without an initial charge, if they are already set up.

What is hard closure?

Occasionally a fund will be hard closed. This is when no investments at all can be made into the fund.

Why does size matter?

Fund companies take these actions because they believe that if the fund gets any bigger, it will impact on the investment process and performance may be compromised. So these actions are taken to protect existing investors.

The important thing to remember is that if you are already invested in the fund, there is no need to panic. The fund company is acting in your interests. Funds that are closed can be reopened at a later date.

If an Elite Rated fund is currently closed to new investments, it will be clearly marked as such.

The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Before you make any investment decision make sure you’re comfortable and fully understand the risks. If you invest in fund or trust make sure you know what specific risks they’re exposed to. Past performance is not a reliable guide to future returns. Remember all investments can fall in value as well as rise, so you could make a loss.