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Closed-End Fund

What is a closed-end fund?

A closed-end fund is a managed investment vehicle that raises cash to invest by selling a set number of shares through an IPO. After the IPO, no new shares will be created.

  • A closed-end fund raises capital from investors once during an IPO.
  • Closed-end funds have a set number of shares that can only be purchased in the secondary market after its IPO.
  • The share price of a closed-end fund is based on the fund’s NAV but is also influenced by market supply and demand.

Investors can use a brokerage service to trade shares of closed-end funds after their IPO from the secondary market, like the New York Stock Exchange.

The share price of a closed-end fund is based on its net asset value (NAV), like its open-end fund counterpart. Unlike open-end funds, however, closed-end funds are also influenced by supply and demand. A closed-end fund has a set number of shares in the market so if demand for its shares rise, its share price will be higher than the fund’s NAV. If the market has little demand for a closed-end fund, then its shares will be traded at a discount to its NAV. The share price of a closed-end fund will fluctuate throughout the trading day like a stock or exchange-traded fund.

Closed-end funds may charge a percentage of the fund’s assets to raise cash for administrative costs. Any capital gains realized in the fund will be passed onto shareholders as distributions. Each closed-end fund will have a specific investment prospectus and investing style.