| Strangely enough, closed-end funds are | | | | Funds? As mentioned above, the fund |
| more like stocks or ETFs than what most | | | | shares could be trading at a discount or |
| people consider a mutual fund. Discover | | | | premium, which could work against you. |
| the difference between closed-end funds | | | | Closed-end funds are plagued with broker |
| and open-end funds. | | | | trading fees. |
| What are Closed-end Funds? Despite the | | | | Closed-end funds are generally riskier. |
| name similarities, closed-end funds | | | | Closed-end funds are less liquid, |
| share little in common with mutual funds | | | | meaning they are much harder to sell. |
| (also known as open-end funds). Sure, | | | | Unlike mutual funds, the shares are not |
| investors pool money together to | | | | redeemable (meaning the company does not |
| purchase stocks or bonds and a | | | | have to buy the shares back) Closed-end |
| professional manages the fund, but | | | | funds tend to charge between 1-2 percent |
| that's where the similarities end. | | | | a year for management fees. |
| It helps me to think of a closed-end | | | | Closed-end fund price information is not |
| fund as a company. But instead of being | | | | always available. |
| a company that makes products, this one | | | | As a general rule, open-end funds |
| buys stocks of other companies. The | | | | attract better managment talent because |
| closed-end fund "company" still has it's | | | | they can grow by attracting new |
| own stock, which is traded on an | | | | investors over time. |
| exchange and trades above or below its | | | | Open-End vs Closed-End Open-end funds |
| underlying value, or net asset value | | | | are bought and sold directly from the |
| (NAV), in this case. | | | | mutual fund company. |
| If you're still confused, try my | | | | There is no limit to the number of |
| glossary definition of a closed-end | | | | available shares because the fund |
| fund. | | | | company can continue to create new |
| There are approximately 800 closed-end | | | | shares, as needed, to meet investor |
| funds, valuing around $371 billion in | | | | demand. On the reverse side, the entire |
| early 2005. | | | | portfolio may be affected if a |
| Best Mutual FundsLargest Source of Free | | | | significant amount of shares is redeemed |
| Info About Mutual | | | | quickly and the manager needs to make |
| Funds!Mutual-Funds-Info.Gd-Invest.com | | | | trades to meet the demands for cash |
| It's a big industry, but much smaller | | | | created by the redemptions. Costs |
| than the open-end, "mutual fund" | | | | associated with this trading activity |
| industry. Closed-end funds are similar | | | | are shared by all investors in the fund, |
| to ETFs, but they are actively managed | | | | so the investors who remain in the fund |
| (ETFs are passive, index-like funds). | | | | share the financial burden created by |
| What's the Difference Between Open-end | | | | the trading activity of investors who |
| and Closed-end Funds? Open-end funds, | | | | are redeeming their shares. |
| also known as mutual funds, are open to | | | | Pricing and Trading: Take Note of the |
| new investors (they can create as many | | | | NAV |
| shares as needed). | | | | Pricing is one of the most notable |
| However, when a mutual fund closes to | | | | differentiators between open-end and |
| new investors, that does not make it a | | | | closed-end funds. Open-ended funds are |
| closed-end fund. When a mutual fund | | | | priced once per day. Every investor |
| closes, it still allows current | | | | making a transaction in the fund on that |
| investors to buy more shares and when | | | | particular day pays the same price, |
| those investors want to sell their | | | | called the net asset value (NAV). |
| holdings, they don't need to find a | | | | Closed-end funds have a NAV as well, but |
| buyer. | | | | the trading price may be higher or lower |
| Closed-end funds, on the other hand, | | | | than that value. The actual trading |
| have a fixed number of shares. Much like | | | | price is set by supply and demand in the |
| a new publicly traded stock, closed-end | | | | marketplace. If the trading price is |
| funds have an IPO. They also trade | | | | higher than the NAV, the fund is said to |
| according to market demands. Every | | | | be trading at a premium. When this |
| seller must have a buyer. | | | | occurs, investors are placed in the |
| What are the Advantages of Closed-end | | | | rather precarious position of paying to |
| Funds? Closed-end funds can sometimes be | | | | purchase an investment that is worth |
| purchased at a discount, meaning they | | | | less than the price that must be paid to |
| are trading below their NAV. | | | | acquire it. |
| Closed-end funds can sometimes be sold | | | | Bottom Line on Closed-end Funds Though |
| at a premium, meaning they can be sold | | | | closed-end funds might be attractive to |
| for more than their NAV. Remember, buy | | | | people trying to take advantage of |
| low, sell high. | | | | pricing inefficiencies, I advise most |
| Closed-end funds have access to some | | | | investors to stick to the open variety: |
| investments and strategies that mutual | | | | mutual funds (or open-end funds). The |
| funds shy away from. Examples include | | | | fees and liquidity associated with |
| buying illiquid securities or using | | | | closed-end funds make them less |
| leverage. | | | | desirable. |
| What are the Disadvantages of Closed-end | | | | |