A closed-end fund, legally known as a closed-end investment company, is one of three basic types of investment companies. A closed-end fund invests the money it raises from investors, often in an initial public offering, in stocks, bonds, money market instruments and/or other securities.
A closed-end fund generally is not required to buy its shares back from investors upon request. That is, closed-end fund shares generally are not redeemable. In addition, they may hold a greater percentage of less liquid securities in their investment portfolios than mutual funds and ETFs.
Closed-end funds are generally registered with the SEC and subject to SEC regulation. In addition, the investment portfolios of closed-end funds typically are managed by separate entities known as investment advisers that are also registered with the SEC.
There are many varieties of closed-end funds, including interval funds and business development companies (BDCs). Each may have different investment objectives, strategies, and investment portfolios. They also can be subject to different risks, volatility, and fees and expenses. Fees reduce returns on fund investments and are an important factor that investors should consider when buying shares.
In addition, some closed-end funds are publicly traded – their shares are bought and sold on national securities exchanges at market prices – while others are not.
You should carefully read all of a fund’s available information, including its prospectus and most recent shareholder report before purchasing fund shares.
