The sponsor has promised in the documents of the fund that it will issue and refund or units of the fund at the fund unit value. This type of fund is valued by the fund company or an outside valuation agent. Any participants withdrawing funds from the fund that day receive this unit value for their funds withdrawn. Any new purchases are made at the same unit value. Open mutual funds keep some portion of their assets in short-term and money market securities to provide available funds for redemptions.
Funds also have the ability to borrow money for short periods of time to fund redemptions.
Illiquid investments, those not actively traded on the public markets, are restricted by government regulators because they are difficult to dispose of in a short period of time. A fund holding an illiquid investment might not be able to sell it in a short period of time or would have to take a significant discount to the valuation level the fund was using. In Canada, most open real estate mutual funds suspended redemptions during the real estate debacle of the early 1990s. Fund participants did not obtain redeemed funds until these funds were restructured into closed-end funds in the mid 1990s and they could sell their units on the stock market. The valuation of investments that are less liquid and trade infrequently is an important issue for mutual funds.