20 Investments: Closed-End Investment Fund
  1. 20 Investments: Introduction
  2. 20 Investments: American Depository Receipt (ADR)
  3. 20 Investments: Annuity
  4. 20 Investments: Closed-End Investment Fund
  5. 20 Investments: Collectibles
  6. 20 Investments: Common Stock
  7. 20 Investments: Convertible Security
  8. 20 Investments: Corporate Bond
  9. 20 Investments: Futures Contract
  10. 20 Investments: Life Insurance
  11. 20 Investments: The Money Market
  12. 20 Investments: Mortgage-Backed Securities
  13. 20 Investments: Municipal Bonds
  14. 20 Investments: Mutual Funds
  15. 20 Investments: Options (Stocks)
  16. 20 Investments: Preferred Stock
  17. 20 Investments: Real Estate & Property
  18. 20 Investments: Real Estate Investment Trusts (REITs)
  19. 20 Investments: Treasuries
  20. 20 Investments: Unit Investment Trusts (UITs)
  21. 20 Investments: Zero-Coupon Securities
  22. 20 Investments: Conclusion

20 Investments: Closed-End Investment Fund

What Is It?
A closed-end fund is an investment fund that issues a fixed number of shares in an actively managed portfolio of securities. The shares are traded in the market just like stocks, but because closed-end funds represent a portfolio of securities they are very similar to a mutual fund. Unlike a mutual fund, the market price of the shares is determined by supply and demand and not by net asset value.

Closed-end funds are usually specialized in their investment focus. For example, one might concentrate its focus on a particular geographic region. They invest in stocks, bonds and other securities to gain a bit of diversification, but because they focus on one region or industry they are not diversified to the overall market. There are several hundred different closed-end funds actively traded on North American stock markets.

There are also "dual purpose" closed-end funds, which simply means that they have two classes of shareholders: preferred shareholders who receive mainly dividends as income, and common shareholders who profit from the capital appreciation of the fund's share price.

Objectives and Risks
Objectives can vary from fund to fund, so it is important to read the prospectus before investing. (To learn more, see Don't Forget To Read The Prospectus!) Some closed-end funds have capital appreciation as their primary concern, while others are more interested in income.

How to Buy or Sell It

Closed-end funds can be bought on various stock markets with the assistance of a full service or discount broker. There is no minimum number of shares to buy, and selling the funds is very easy and quick. When purchasing a closed-end fund, you are typically charged the usual brokerage commission as well as an annual management fee, usually under 1%.



Strengths
  • These funds are easy to buy and sell on financial markets. Furthermore, they are regulated by the Securities and Exchange Commission.
  • The funds usually invest in hundreds of companies, so they offer good diversification in certain areas.
  • If bought in a tax-deferred account, closed-end funds are a great investment for long-term capital appreciation.
  • Weaknesses
  • Fixed interest payments are taxed at the same rate as income.
  • The price of the closed-end fund is not exclusively linked to the performance of the securities held by the fund. The fund\'s share price depends on supply and demand in the open market.
  • Three Main Uses
  • Capital Appreciation
  • Income
  • Safe Tax Deferred Investment
  • 20 Investments: Collectibles

    1. 20 Investments: Introduction
    2. 20 Investments: American Depository Receipt (ADR)
    3. 20 Investments: Annuity
    4. 20 Investments: Closed-End Investment Fund
    5. 20 Investments: Collectibles
    6. 20 Investments: Common Stock
    7. 20 Investments: Convertible Security
    8. 20 Investments: Corporate Bond
    9. 20 Investments: Futures Contract
    10. 20 Investments: Life Insurance
    11. 20 Investments: The Money Market
    12. 20 Investments: Mortgage-Backed Securities
    13. 20 Investments: Municipal Bonds
    14. 20 Investments: Mutual Funds
    15. 20 Investments: Options (Stocks)
    16. 20 Investments: Preferred Stock
    17. 20 Investments: Real Estate & Property
    18. 20 Investments: Real Estate Investment Trusts (REITs)
    19. 20 Investments: Treasuries
    20. 20 Investments: Unit Investment Trusts (UITs)
    21. 20 Investments: Zero-Coupon Securities
    22. 20 Investments: Conclusion
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    RELATED FAQS
    1. How do I purchase shares of a closed-end investment?

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    2. What risks are associated with a closed end investment?

      Explore the characteristics of closed-end funds as compared to open-end funds, and understand the risks associated with investing ... Read Answer >>
    3. What are the primary differences between a closed end investment and an open end ...

      Learn what the primary differences are between open-end investments and closed-end investments, and the implications for ... Read Answer >>
    4. What is "leverage" as it is used in closed-end funds?

      A distinguishing feature of closed-end funds is their ability to use borrowing as a method to leverage their assets. An ideal ... Read Answer >>
    5. In what instances does a business use closed end credit?

      Find out how businesses use closed-end credit to finance large purchases such as vehicles, equipment and property, including ... Read Answer >>
    6. Why is it that when investors realize returns on a mutual fund, its price tends to ...

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