Mutual funds generally fall into two categories: open-end and closed-end funds. Closed-end funds (CEFs) operate differently from the more common open-end variety. A CEF issues a fixed number of shares at launch, usually through an initial public offering (IPO), and those shares are then traded on a stock exchange. Unlike open-end funds, new shares are not created or redeemed in response to investor demand.

A closed-end fund represents an interest in a professionally managed portfolio that may focus on a particular industry, geographic region, or market sector. Its share price changes throughout the trading day, reflecting both the underlying value of the holdings and market supply and demand. This means shares can trade at a premium or a discount to the fund’s net asset value (NAV).

Why Consider Closed-End Funds?

• Liquidity – Shares trade on an exchange throughout the day, similar to individual stocks.

• Market Pricing – Investors can buy or sell at prices that may be higher or lower than the NAV.

• Lower Costs – With a fixed number of shares, CEFs generally avoid the distribution and redemption costs of open-end funds, often resulting in lower ongoing expenses.

• Stable Asset Base – Because capital is raised upfront, managers can invest without needing to respond to inflows or redemptions, supporting a consistent strategy.