Introduction

A closed-end fund sells a set number of shares once through an initial public offering (IPO) to raise investment capital. These shares are then traded on a stock exchange, with no new shares being issued or new money added to the fund.

In contrast, an open-end fund, such as most mutual funds and exchange-traded funds (ETFs), accepts a constant flow of new investment capital. It issues new shares and buys back its own shares on demand.

Many municipal bond funds and some global investment funds are closed-end funds.

How it works

• Issue a fixed number of shares at launch, usually through an initial public offering (IPO).
• Shares are traded on stock exchanges between investors, like regular stocks.
• The fund does not create or redeem shares in response to investor demand after launch.
• Share price is determined by market supply and demand, and may differ from the fund’s net asset value (NAV).
• Fund managers invest the pooled capital according to the fund’s strategy, but the asset pool remains stable.
• Investors buy or sell shares on the exchange, not directly with the fund.

Conclusion

Closed-end funds are funds that only issue shares once. When they are all sold, there are no more available unless an owner decides to sell them. Closed-end funds are generally priced by their net asset value, but prices fluctuate throughout a trading day because they are actively traded.