There are many types of mutual funds available in the markets. There are open-end mutual funds, as well as closed-end mutual funds. This article would discuss and explain the general characteristics of closed-end mutual funds. Closed-end mutual funds are types of mutual funds that use different tactics in their investment and management obligations. They offer their investors some advantages different from those offered by open-end funds. They are well managed and invest all of their assets into the market.
A closed-end mutual fund is an investment vehicle aiming to achieve positive investment returns for the investors in the fund. Closed- end mutual funds have some general characteristics. The investors in closed-end mutual funds buy into the fund through the IPO process. After the IPO process, the shares of closed-end mutual funds are listed on stock exchanges and traded like regular stocks. The closed-end name is derived from the fact that subscription into the fund is only open for a designated period, after which time the fund is closed to new subscribers.
Closed-end mutual funds are run by professional investment managers, and they generally deliver higher investment returns than open-end mutual funds. Their managers have opportunities to invest all of their capital in the markets, and they have very a small percentage of their assets in cash. This enables them to stay invested all the time, a factor helping them to achieve higher returns.
The shares o closed-end mutual funds are traded in the stock exchanges; this advantage helps the managers to keep all their capital invested in the markets. The market price of closed-end funds is generally determined according to the levels of supply and demand in the markets. As in the case of open-end mutual funds, the price of their shares is determined by the net asset value, or NAV.
Closed-end managers maintain a well-diversified portfolio of investments in different sectors and industries. With the high skills and knowledge of their managers, they are able to conduct advanced market research, which enables the managers to quickly identify and take advantage of new trading opportunities for the benefit of their fund. Diversification helps reduce the investment risks carried by stock market investing.
The cost of buying and selling closed-end mutual funds in large quantities is considerably much less than buying in small quantities. There are reductions in both management and administrative cost for closed-end mutual funds. These kinds of assets are passively managed while open-end mutual funds require active management.