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LSDefine
Simple English definitions for legal terms
closed-end fund
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A quick definition of closed-end fund:
A closed-end fund is a type of investment fund that operates like a mutual fund, but with a fixed number of shares. Unlike mutual funds, closed-end funds are traded on stock exchanges like individual stocks. This means that the price of a closed-end fund can be higher or lower than the value of its underlying assets, depending on supply and demand. Investors can buy and sell shares of a closed-end fund on the stock exchange, but the fund itself does not issue or redeem shares based on investor demand.
A more thorough explanation:
A closed-end fund is a type of investment fund that operates like a mutual fund, but with a fixed number of shares. Unlike mutual funds, closed-end funds do not issue new shares to investors. Instead, investors buy and sell shares on a stock exchange, just like they would with a stock.
For example, let's say a closed-end fund has 1 million shares. If you buy 100 shares, you own 0.01% of the fund. If you sell those shares, they are bought by another investor, not the fund itself.
Closed-end funds can be a good way to invest in a diversified portfolio of stocks or bonds. However, they can also be riskier than mutual funds because their share prices can be more volatile.