Closed-End Fund
A closed-end fund is a type of investment fund that raises a fixed amount of capital through an initial public offering (IPO) and then trades its shares on an exchange. Unlike open-end mutual funds, which continuously issue and redeem shares based on investor demand, closed-end funds have a fixed number of shares, and their market price is determined by supply and demand on the exchange.
Example
An investor buys shares of a closed-end fund on the New York Stock Exchange at a price that is 5% below the fund’s net asset value, allowing them to potentially profit from the discount.
Key points
• Closed-end funds issue a fixed number of shares and trade on stock exchanges.
• Their share prices are determined by supply and demand and can trade at a premium or discount to NAV.
• They differ from open-end funds, which continuously issue or redeem shares based on investor demand.
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