Closed-End Fund

Closed-end funds are crates of stocks that are gathered by an investment objective and regulated by a manager. However, not at all like open-end funds, which keep on expanding their asset base by selling to new shareholders, closed-end funds get assets by selling a fixed number of shares through an initial offering. After the initial sale, the closed-end fund's shares trade like stocks on exchanges like the NYSE or the AMEX. Low demand for a fund can cause closed-end shares to trade at discounts to net asset value. High demand can make premiums to NAV.

Highlights

• Closed-end funds are normally actively managed, in contrast to index mutual funds and ETFs, and regularly focus on a single industry, sector, or region.
• The initial capital for a closed-end fund is raised through a one-time offering of a limited number of shares in the fund.
• The shares may then be bought and sold on a public stock exchange however no new shares can be made.

FAQ

How Are Closed-End Funds Different From Open-End Funds?

An open-end mutual fund issues new shares at whatever point an investor decides to buy into it, and buy them back when they're available.A closed-end fund issues shares just a single time. The best way to get into the fund later is to buy a portion of those existing shares on the open market.Notably, closed-end funds utilize leverage, or borrowed money, to support their returns to investors. That means higher likely rewards in great times and higher expected risks in awful times.One thing that closed-end and open-end funds share practically speaking: fees. Most closed-end funds are actively managed and charge somewhat high fees compared to index funds and ETFs.

What Are the Advantages of a Closed-End Fund?

You have two likely ways of bringing in money with a closed-end fund: You can partake in the income or growth that is created by the fund's investments. Furthermore, you might have the option to buy shares of the fund at a discount to its net asset value (NAV).An open-end mutual fund computes its NAV as the real current value of the investments that are owned by the fund. Shares of a closed-end fund trade over the course of the day on a stock exchange, and that market-driven price might contrast from its NAV.