A closed-end fund is an investment company that sells a fixed number of shares all at once. It is one of several other types of companies, which include mutual (open-ended) funds, unit investment trusts (UITs), and exchange-traded funds (ETFs).
However, while they all fall under the same umbrella, there are some characteristics that make the closed-end funds unique.
- They’re sold in bulk. As mentioned previously, this type of investment company sells its shares at one time. They are offered in one initial public offering and then are later traded on a secondary market such as NYSE or Nasdaq.
- Share prices are determined by the market. Once a closed-end fund has started trading on a secondary market, its price is decided by the market itself, which sometimes results in the price being greater or less than the share’s net asset value (NAV).
- No minimum amount is required to invest. While the closed-end fund is not the only investment company that does not require a minimum amount to begin investing (EFTs don’t either) it is still a standout characteristic to make note of.
- They’re not typically redeemable. Unlike some funds, it is not required to buy back shares from investors when requested unless it is an interval fund, in which case it can offer to repurchase shares during predetermined intervals.
- They can invest in more illiquid securities. This investment company, unlike some others, can invest in illiquid securities (those that cannot be sold within seven days at the price used in determining the NAV).
Like many other funds, the closed-end fund is subject to SEC regulation, which means it falls under a number of requirements meant to protect its investors. Before you decide to get involved in this type of investment company, it is a good idea to research them all to help you determine which ones are a good fit for you.