Most are seeking solid returns on their investments through the traditional means of capital gains , price appreciation and income potential. The wide variety of closed-end funds on offer and the fact that they are all actively managed unlike open-ended funds make closed-end funds an investment worth considering. From a cost perspective, the expense ratio for closed-end funds may be lower than the expense ratio for comparable open-ended funds.
Closed-End Fund Association. Mutual Fund Essentials. Mutual Funds. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification.
I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Investing Mutual Funds. Key Takeaways Closed-end funds operate more like ETFs, in that they trade throughout the day on a stock exchange. Closed-end funds have the ability to use leverage, which can lead to greater risk but also greater rewards. The first closed-end funds were introduced in the U. Despite their head start, closed-end funds are less popular because they tend to be less liquid and more volatile than open-ended funds.
Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Open-End Funds: What's the Difference? Partner Links. As mentioned earlier, the market price of closed-end fund shares fluctuates subject to the forces of supply and demand. Demand for or aversion to levered investments may factor in, as may manager popularity.
The relationship between a closed-end fund's market price and its NAV is often referenced as one measure of fund performance. A fund is said to be trading at a discount when its market price falls below its NAV; if the market price rises above the NAV, the fund is said to be trading at a premium. But, neither premium nor discount pricing in and of itself tells a complete story. It could also reflect changes in market sentiment and the view that certain asset classes or sectors of the market may be out of favor.
But, it could also mean the fund is currently overvalued. There are divergences of opinion on how best to evaluate closed-end fund performance. Performance may be measured as a percentage change in the market price or the NAV, including or excluding distributions. Steady monthly or quarterly dividends often are the key selling point for CEFs. CEFs typically report information about their earnings in shareholder reports and other updates.
Shareholders should consult these reports to better understand the earnings profile of a specific fund in relation to its distributions. Before investing in a closed-end fund, it is important to review its trading history, performance, current earnings in relation to distributions, underlying asset class, and sector exposures, as well as how the CEF may complement other elements of a portfolio.
Without question, CEFs are a bit complex; and they tend to be more volatile and have portfolios that are less liquid than conventional open-end funds. At the same time, they can be an important source of income and enhanced return potential for sophisticated investors.
Closed-end funds, unlike open-end funds, do not continuously offer new shares. After the initial public offering, shares are sold on the open market through a stock exchange. Closed-end funds may be leveraged and carry various risks depending upon the underlying assets owned by a fund.
Investment policies, management fees and other matters of interest to prospective investors may be found in each closed-end fund annual and semi-annual report and also through press releases. For additional information, please contact your investment professional.
A word about risk: Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk.
The value of most bonds and bond strategies is impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility.
Bond investments may be worth more or less than the original cost when redeemed. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses.
Mutual Funds Mutual Fund Essentials. What Is a Closed-End Fund? Key Takeaways The initial capital for a closed-end fund is raised through a one-time offering of a limited number of shares in the fund. The shares may then be bought and sold on a public stock exchange but no new shares can be created. Closed-end funds are usually actively managed, unlike index mutual funds and ETFs, and typically concentrate on a single industry, sector, or region.
Pros Diversified portfolio Professional management Transparent pricing Potential for higher yields. Cons Subject to volatility Less liquid than open-end funds Available only through brokers May get heavily discounted. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.
You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms Open-End Fund An open-end fund is a mutual fund that can issue unlimited new shares, priced daily on their net asset value.
The fund sponsor sells shares directly to investors and buys them back as well. What Is a Dual-Purpose Fund? A dual-purpose fund is a closed-end fund that offers two classes of stock: Common and preferred shares. What Is Forward Pricing? Forward pricing is an industry standard for mutual funds that requires investment companies to price fund transactions according to the next NAV. Bond Fund Definition A bond fund invests primarily in bonds government, corporate, municipal, convertible and other debt instruments to generate monthly income.
New Fund Offer NFO A new fund offer is the first subscription offering for any new fund offered by an investment company. Discover how to invest in an NFO.
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