What are CLOSED-ENDED FUNDS ?
A type of fund in which investors have to commit their money for a particular period of time, as specified by the terms of the offer. The chief drawback is that since an exit is not available from the fund itself, units of closed – ended funds normally trade on stock exchanges at a discount to their actual NAV. However, this discount reduces as the fund approaches its redemption date.
Closed-ended mutual funds constitute financial securities that are traded on the stock market. These types of funds can only issue a fixed number of shares in an initial public offering, of which trading is done on the exchange. The prices of the shares are determined by both the net asset value (NAV) and the level of demand by investors. The investment dealer will raise funds through underwriting and create a particular fund with specific financial objectives.
