What is a CLOSED-END Mutual Fund?

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On CLOSED-END Mutual Funds

How are they different from an open end mutual fund?
How do closed end mutual funds work?
Which is more expensive or risky?
Which is more traditional or new wave?
Which is older -or- newer?
How are closed end funds purchased and sold? 

Your thoughts are appreciated.

Mutual Funds
Investing
Financial Analysis
Dr. David E. M
61 months ago

2 answers

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In case of Closed-ended funds, the investors are not allowed to redeem units of the fund except on prescribed dates of maturity expires. Portfolio managers get a stable base of assets which is not subject to frequent redemption that fund manager is in a comfortable position to formulate an investment strategy keeping in mind about inflows and outflows.

Er. Jangyadutta D
61 months ago
I think most closed end funds are listed on an exchange and can be sold directly to another investor anytime. So while you can't redeem directly an investor can get out any time if willing to take the likely discount to underlying assets. - Anthony 61 months ago
Agreed; sold not redeemed. - Dr. David E. 61 months ago
Listed on exchanges - Dr. David E. 61 months ago
Priced at premium or discount; not NPV - Dr. David E. 61 months ago
Good thoughts - Dr. David E. 61 months ago
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The closed end fund is the older structure than the modern mutual fund and it is generally more expensive to invest in but there are also advantages. The biggest advantage to my mind is the fixed pool of capital. If a manager doesn't have to worry about redemptions or how to invest a large chunk of "hot money" they in theory can do a better job of sticking to their specialized discipline or strategy. As an investor I would never want to buy into a closed end fund at the IPO level since they almost always end up trading at a discount to underlying assets. I would and have bought closed end funds selling at a huge discount to asset value in those cases where I was looking for a vehicle for a specific investment niche. Closed end funds are similar to ETFs but ETFs do create new investment units more frequently and I believe they have some other method of ensuring that the unit price is closely matched to the underlying asset prices on a daily basis.

Anthony J
61 months ago
Well said and interesting - Dr. David E. 61 months ago
There are value investors who's entire strategy is based on finding closed end funds with high discounts and then arbitraging them against other assets at fair value or premium value. Low risk, moderate return strategy if you're patient. - Anthony 61 months ago
Agree and well said - Dr. David E. 61 months ago

Have some input?