Thursday, March 11, 2010

Closed-end funds

Closed-end funds are exactly the same as open-end funds, only completely different.
Let's look at the similarities:
  • both are portfolios managed by an investment adviser
  • investment objectives are often similar
  • both are investment companies
  • both are "management companies" as opposed to UITs and face-amount certificates

Now let's look at the differences:

  • open-end funds are redeemed for the NAV (net asset value)
  • closed-end funds are traded, independent of their NAV
  • sales charges and 12b-1 fees are charged to open-end fund investors
  • investors pay commissions to buy and sell closed-end funds
  • closed-end funds use more leverage offering auction-rate preferred shares to investors
  • open-end funds may continuously offer new shares
  • closed-end funds have a fixed number of shares

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