Closed-End Funds and Mutual Funds

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Closed-End Funds and Mutual Funds

Closed-end funds (CEFs) share some traits with traditional open-end mutual funds:

• Both have an underlying portfolio of investments with a net asset value.
• Both are run by a professional management team.
• Both have expense ratios and, typically, fee schedules.
• Both may offer distributions of income and capital gains to investors.

However, traditional mutual funds issue and redeem shares daily at the end of business, at the fund's net asset value. CEFs do not issue or redeem shares daily.

How they trade

Instead, CEF shares trade on an exchange intraday, like stocks. The share price for a CEF is set by the market. The share price only rarely, and by sheer coincidence, equals the CEF's net asset value.

Also unlike traditional mutual funds, CEFs may issue debt and/or preferred shares to leverage their net assets. That leverage can increase distributions (income) but also increases volatility of the net asset value.