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