What is a Closed-End Fund?
A closed-end fund is a type of investment company whose shares are listed on a stock exchange or are traded in the over-the-counter market. The assets of a closed-end fund are professionally managed in accordance with the fund’s investment objective and policies, and may be invested in stocks, bonds, or a combination of both. Like other publicly traded securities, the market price of closed-end fund shares fluctuates and is determined by supply and demand in the marketplace. This brochure provides an overview of some of the types of closed-end funds and how they operate. However, each closed-end fund is different, and investors should learn more about a particular fund before investing.
One of the best ways to define a closed-end fund is to state what it most definitely is not: A closed-end fund is not a mutual fund, which by its very nature is open-ended, continually offering new shares for sale to the investing public. In addition to being much better known than closed-end funds–thanks to millions spent in sales promotion–mutual funds also operate differently. Their purchase price, for example, is based on the net asset value per share (NAV)–meaning the total net assets of the fund divided by the number of its outstanding shares, plus, for load funds, a sales charge that can run as high as 8 percent. In the case of the so-called no-load funds–those without a sales commission–shares are generally bought and redeemed at their net asset value. Closed-end funds, on the other hand, do not continue to sell new shares endlessly as the mutual funds strive to do. Closed-end funds issue–and this concept is essential to understand–a fixed amount of stock. In this respec
Closed-end funds are mutual funds that issue only a limited number of shares for public trading. The trading price of a mutual fund set up as a closed-end fund is often influenced by the supply and demand for the shares outstanding. This is in contrast to other mutual funds that tend to trade based on the net asset value of the underlying security. The conditions of the fund are usually announced at the time of the initial public offering. Because the price associated with a closed-end fund is dictated mainly by the market price, the competition for these types of funds can become quite fierce. The additional incentive has to do with the limited availability of the shares. Since only a limited amount of shares are made available for public trading at any given time, investors who consider the closed-end fun to be highly desirable may actively compete to secure the shares. This will often drive up the market price that the shares can command. Understanding the performance of a closed-en
