A closed-end fund is a type of collective investment vehicle that pools together money from investors, invests it in a diversified portfolio of securities and invests it until the fund is terminated or dissolved. Unlike open-end funds or exchange-traded funds (ETFs), a closed-end fund issues a fixed number of shares that are priced and traded on a stock exchange like a traditional security.
Closed-end funds were created in the late 1800s and were first offered for sale on the London Stock Exchange. Unlike the other two main types of mutual fund investments, open-end funds and ETFs, closed-end funds typically pay out dividends or distributions on a regular basis and can be bought and sold on the open market in the secondary market.
Most closed-end funds are actively managed, meaning they are overseen by a portfolio manager that uses research and analysis to select investments. A closed-end fund may focus on a particular market sector, such as real estate, or a particular region, such as emerging markets, or may have a more broad focused portfolio. Investors typically invest in closed-end funds because they offer higher potential returns than index mutual funds, ETFs, or other stock market investments.
Unlike open-end funds and ETFs, which do not have a specific termination date, a closed-end fund has a defined life span and must make distributions to shareholders when the fund shuts down. The initial capital for a closed-end fund is raised through a one-time offering of a limited number of shares in the fund. After the initial offering period, the fund is closed to new investments, and the fund’s shares may then be bought and sold on a public stock exchange. Further, unlike an open-end or ETF fund, the closed-end fund has a fixed number of shares and, typically, will not issue new shares or engage in financial engineering to increase the fund's return.
Closed-end funds offer investors the opportunity to invest in a diversified portfolio of securities, pay out distributions on a regular basis, and benefit from the increased potential for higher returns than other types of stock market investments. However, closed-end funds also carry higher risks than open-end funds and ETFs and are not suitable investment vehicles for all investors. Investors considering closed-end funds should do their due diligence and carefully research the fund and its performance to ensure that they are comfortable with the potential risks involved.
Closed-end funds were created in the late 1800s and were first offered for sale on the London Stock Exchange. Unlike the other two main types of mutual fund investments, open-end funds and ETFs, closed-end funds typically pay out dividends or distributions on a regular basis and can be bought and sold on the open market in the secondary market.
Most closed-end funds are actively managed, meaning they are overseen by a portfolio manager that uses research and analysis to select investments. A closed-end fund may focus on a particular market sector, such as real estate, or a particular region, such as emerging markets, or may have a more broad focused portfolio. Investors typically invest in closed-end funds because they offer higher potential returns than index mutual funds, ETFs, or other stock market investments.
Unlike open-end funds and ETFs, which do not have a specific termination date, a closed-end fund has a defined life span and must make distributions to shareholders when the fund shuts down. The initial capital for a closed-end fund is raised through a one-time offering of a limited number of shares in the fund. After the initial offering period, the fund is closed to new investments, and the fund’s shares may then be bought and sold on a public stock exchange. Further, unlike an open-end or ETF fund, the closed-end fund has a fixed number of shares and, typically, will not issue new shares or engage in financial engineering to increase the fund's return.
Closed-end funds offer investors the opportunity to invest in a diversified portfolio of securities, pay out distributions on a regular basis, and benefit from the increased potential for higher returns than other types of stock market investments. However, closed-end funds also carry higher risks than open-end funds and ETFs and are not suitable investment vehicles for all investors. Investors considering closed-end funds should do their due diligence and carefully research the fund and its performance to ensure that they are comfortable with the potential risks involved.