What is a Closed-End Fund?

Answer:
According to the SEC, there are three different types

of investment companies and types: closed-end funds, mutual funds, and Unit Investment Trusts (UTIs). Closed-end funds don’t usually offer their shares for sale continuously. Instead, they may offer a fixed number of shares at one time such as the Initial Public Offering and then trade on the secondary market.

Closed-end funds are not necessarily redeemable. A closed-end fund does not have to buy back its shares from investors when requested.

When closed-end funds are traded on the secondary market after the IPO, their price is determined by market value which could be more or less than the share’s Net Asset Value.

Closed-end funds are allowed to invest in more illiquid securities (securities that can’t be sold within 7 days at the approximate Net Asset Value price) than their mutual fund counterparts. Because of this, funds that prefer illiquid securities are usually organized as close-end funds.

Like mutual funds, closed-end funds come in many different varieties with different investment objectives, strategies, portfolios, risks, fees, and volatility.


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