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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.

Quick Answers to Curious Questions

A closed-end fund has a fixed number of shares traded on an exchange, while an open-end fund issues and redeems shares based on investor demand.

The price is determined by supply and demand on the stock exchange, and it can trade at a premium or discount to the fund’s net asset value (NAV).

Market sentiment, low demand, or pessimism about the fund’s future performance can cause the shares to trade below the NAV.

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