Closed End Funds
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Closed end funds are professionally managed investment companies that can potentially offer investors attractive benefits and an important way to achieve long term investment goals.
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Closed End Funds Compared To Open End Funds (Mutual Funds)
Closed end funds may be compared to open end funds, better known simply as mutual funds, although there are important differences, according to the Closed End Fund Association. Both generally benefit from professional management, diversification, and specific investment objectives. Importantly, mutual funds typically issue and repurchase shares directly, as needed. Shares are purchased and sold at net asset value (NAV), calculated at the end of the trading day, rather than at a market price determined by supply and demand. Thus, the price reflects the value of the underlying securities, rather than demand for the fund. The need to hold cash positions to satisfy redemption requests can adversely affect mutual fund returns in a favorable market. Conversely, closed end funds can be fully invested and need hold little or no cash position in their portfolios. In addition, closed end funds do not incur the ongoing costs associated with creating and redeeming shares and typically have lower expense ratios than standard mutual funds. There are also no minimum investment restrictions or holding periods on closed end funds shares.