Let's continue with the story of Pete's mutual fund. So let's say that a year goes by and that even after paying Pete the 1%, so it had $500 of assets under management, this whole assets under management a year later, let's say it goes to, like I mentioned at the end of the last video,$1,000. So Pete either is really good at or really lucky, or a little bit of both. So it goes to $1,000. So let me draw it like this. So now it is that$1,000, and it still has the same five investors here. And I'm lucky enough to be one of them. So here are the five investors. Let me draw the shares. So there's one, two, three, four, five shares. Now, each of the shares-- well, the $1,000 is called the NAV, or the net asset value. So let me give you that piece of terminology, just means net asset value. And so there's an NAV per share. The NAV per share right over here is$200. I just took the total NAV and I just divided it by the shares. And what's special about an open-ended mutual fund is at the close, or at the end of every day, either new shares can be removed from the fund or could be created for the fund. So in the first video, I showed how I wanted to buy into the fund so I bought a share. And that increase the NAV. And it also increased the number of shares. He had to create a share for me to buy, he didn't sell me share that already existed. So you can imagine, after this type of performance more people would want to buy shares. So now they would have to buy in to make things fair at $200 per share, because that's the current NAV per share. So let's say that five more people want to buy in at$200 per share. So what Pete would do, or what this mutual fund-- it's not Pete really, it's the corporation-- it would create five new shares. So one, two, three, four, five. If there was only one person that day it would create one share that day. If there was 10 people that they would create 10 shares that day. And it could keep doing this. And the NAV of each of these are $200. So it gives the shares to each of these people. And they had to contribute$200. So essentially it puts another $1,000 into the pool that Pete can now manage. And so now the total NAV for the fund is$2,000 now. And Pete will get his 1% management fee off of this entire $2,000. Now let's say that we fast forward a little bit. We fast forward a little bit to let's say Pete starts having a not so good year. So let's say we fast forward a year past that and Pete has a negative 10% return. So if you started at$2,000, and that's when you include taking his management fee out, you start at $2,000, you lose 10% in one year. So it goes down to$1,800. Let me do this in a new color. So now he's at $1,800. It's not completely drawn to scale, but hopefully you get the idea. So now he is at$1,800. But you still have a total of 10 shares. So let me do my best to draw the 10 shares. So I have one, two, three, four, five, six, seven, eight, nine, 10. These should be of equal size. And now the NAV per share is going to be 1,800 divided by 10, or $180. And let's say that I get a little bit freaked out by this recent performance. And I have some other commitments with my money. So I say Pete, you need to buy my share back from me. So what Pete does is he would give me back$180. So the total NAV would lose $180. So it would go down to$180. So we would take this out of it. 1,800 minus 180 is 1,620. So now it is 1,620. And they would buy back a share from me. So they would cancel one of the shares. But notice, the NAV per share does not change. By me redeeming my share it does not change what happens to everyone else. Now you have 1,620 divided by 9 shares, that should still get you to be $180 per share, if I did my math right. So 1,800 minus 180 gets you 1,620. It should still be one$180 per share. But this is the nature of an open-ended fund. You can keep creating shares and selling them to the public to raise more money. Or when someone wants their money back you essentially buy the share back from them, give them their money when you buy it back, and you remove that share. So an open-ended fund, really at the close of every trading day, can keep growing or shrinking. It could be keep adding more and more investors. Or their investors can take their money back. What's difficult about this from the fund manager's point of view, is that they have to manage this. They have to manage this constant buying and selling with the public. They have to manage the paperwork. And if you think about it, they can't have all of their money invested in relatively illiquid assets, or even in regular stocks. They have to keep some amount of their money. And it's usually like 3% to 5%. They have to keep some of this \$2,000 before he lost my money, they have to keep some of it in cash. And from an investor's point of view, they would say, well, if I'm good at investing I should try to minimize the amount of cash that I have because I'm not getting return on cash. But because it's open-ended, because investors might come by and say, hey, I want my money, you have to have a little bit of cash as part of the asset pool in order to be able to buy people's shares back.