Offbeat Offerings: Closed-End Funds
Most investors are quite familiar with open-end mutual funds, portfolios of securities that offer diversification and professional management at a low cost even for smaller-sized investors.
Closed-end funds, however, are a sometimes-overlooked alternative. Closed-end funds differ from mutual funds in that once the fund issues shares, those shares are bought and sold in the open market; unlike a mutual fund, the closed-end fund does not itself stand ready to redeem shares from investors wishing to sell their shares. Closed-end fund shares have both a net asset value and a share price, and sometimes trade at discounts or premiums to net asset value.
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A closed-end fund raises capital by issuing a fixed number of shares, which typically (but not always) are listed on a stock exchange. Once issued, those shares are bought and sold in the open market.
In contrast, open-end mutual funds generally sell their shares on a continuous basis (although some will close to new investors), and shares are purchased and redeemed directly by the fund (or through a broker for the fund) at the fund’s approximate per share net asset value plus any shareholder fees or sales charges imposed by the fund.
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