Closed-End Funds

An investment that releases a fixed number of shares in a well managed securities’ portfolio, is known as a closed-end fund. In market, these shares are traded like the stock shares, but as the closed-end funds represent a portfolio of the securities, these are similar to mutual fund. Shares’ market price is ascertained by the supply and demand, not by the net asset value.

The closed-end funds are usually specialized in the investment focus, e.g. a person might focus on a specific geographic region, he make his or her investments in the bonds, stocks, and other securities for gaining diversification, but he is concentrating only a single region, so he is not diversified to whole market.

Dual-purpose closed-end funds are also popular ones, these means that there are two classes of the shareholders, the preferred shareholders those get mainly dividend as income, and the other are common shareholders those gain from the capital appreciation of the share price of the fund.

The objectives and risks vary from fund to fund. So, it is essential to know about these before making the investments, and you can read prospectus for this. Capital appreciation is the primary concern of several closed-end funds, while the other are more interested in the income.

Some of investors are not sure about the buying or selling of the closed-end funds. These funds can be purchased on the different stock markets with the help of a discount broker or complete service. You will not fixed number of the shares to purchase, and the selling of the closed-end funds is also very convenient and fast. When you buy a closed-end fund, you are also charged with the usual brokerage commission as an annual management fee that is usually under 1%.

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