Just about every fund available will fall into one of four categories: Open-end, Exchange-traded, UIT or Closed-end. To help you make heads or tails of these fund types, the table below outlines general definitions, pros and cons, liquidity concerns and other important information to help you make wiser decisions about your finances.

Before investing in any mutual fund or exchange-traded fund (ETF), carefully consider information contained in the prospectus, including investment objectives, risks, charges and expenses. You can order a free prospectuses the fund company or from Ally Invest.

Read more: Mutual Funds vs. Index Funds

Check the Prospectus.

Many but not all prospectuses are available online. Not all mutual funds are available through Ally Invest. Read the prospectus carefully before investing. Investment returns will fluctuate and are subject to market volatility so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the fund company. Some specialized exchange-traded funds can be subject to additional market risks.

Open-End Mutual Fund Exchange-Traded Fund Unit Investment Trust (UIT) Closed-End Fund
What it is A fund that pools the money of many investors and invests in many different securities, selected according to the fund’s investing objective and strategy. Most mutual funds are open-end mutual funds; the number of shares varies with demand and the amount of money invested in the fund. A fund that, like a mutual fund, pools the money of many investors and invests in many securities. Typically, an ETF invests in the securities included in a specific index. A fund that pools the money of many investors. A UIT invests in a fixed portfolio and holds those securities without buying or selling until the trust’s expiration date. A UIT typically holds one specific type of security—for example, municipal bonds. A fund that pools the assets of many investors. Unlike an open-end mutual fund, a closed-end fund is created by an initial public offering (IPO), has a fixed number of shares and is typically traded on a major exchange, such as the New York Stock Exchange.

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