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Closed End Fund Investing and Definition

Management companies that trade on the secondary market are known as Closed End Funds. These investments are similar to mutual funds, except unlike mutual funds - they are not issuing new shares in the primary market ongoing.

The company does a one time initial public offering and then the shares of the closed end fund trade Over The Counter or on an exchange.


To buy shares in a closed end company, you will buy through a broker and pay a commission. These funds are trading in the market, so the buying and selling of closed end fund shares are the same as buying shares of stock.

The value or price of the traded funds are based on performance of the fund along with supply and demand - just like any other negotiable security.

NAV - Net Asset Value

The true value per share of a closed end fund can be found in it's NAV or Net Asset Value. This is calculated daily and is based on the total net income - operatating expenses such as costodian banks etc. divided by the number of outstanding shareholders.

Although the NAV is calculated daily and represents the true value of the fund per share, the share price is based on the trading in the market. The trading price of a closed end fund should trade fairly close to it's NAV.

Closed end funds have an investment advisor that trades the securities and manages the cash in the fund. The advisor has discretionary authority within the limits of the funds investment objectives. The securities can be composed of stocks, bonds or in the case of a REIT - real estate investments.

Dividends are paid to shareholders and taxable to the shareholders. This also applies to open end mutual funds.


The Capitalization of an open end fund and closed end companies is different in that closed end funds can issues preferred stocks and bonds. Mutual funds (Open) cannot.

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