A closed-end fund differs from a traditional open-end mutual fund in significant ways. As its name implies, closed-end funds are closed to new investment capital after the initial offering. That is, the number of shares is limited to the initial offering, unlike open-end funds, which create new shares whenever there is demand. Below are outlined some of the important differences between open- and closed-end funds.
- Fixed number of shares, following an initial public offering
- Share price is determined by the market
- Shares may trade at a premium or a discount to underlying NAV
- Shares are bought and sold on secondary market, like stocks; fund not required to buy back shares from investors
- Greater flexibility in illiquid investments
- Continuous sale of shares; new shares are issued as demand warrants.
- NAV is determined once per day at market close
- Shares are bought and sold at NAV
- Shares are bought and sold by the fund
- Investments in illiquid securities are limited