A closed-end fund is a way for companies to make fast cash by offering a specific number of shares via an initial public offering. Just as with any investment, there are risks and benefits to investing in these funds. You should consider the effect the funds will have on your portfolio prior to investing.

Understanding the closed-end funds basics allows you to make informed decisions about your investment portfolio. Consider the following suggestions:

1. Understand the reasons companies will offer closed-end funds to investors.

2. Consider the specific risks and benefits of investing in closed-end funds.

3. Keep current on events that may affect closed-end funds.

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Know the function and purpose of closed-end funds

A closed end fund provides a company the opportunity to raise a fixed amount of capital by selling a predetermine number of shares at an initial public offering. Once someone buys these shares, they can then be set up and traded on a normal stock market.

I recommend: The Securities and Exchange Commission offers closed end fund information, including a detailed definition of how it determines what funds are closed-end funds. Investopedia offers an easy to understand explanation of closed-end funds.

Learn the closed end funds fundamentals

Unlike open-end funds, companies which sell closed-end funds aren't required to buy the shares back if an investor decides he wants to sell the shares. Investors make money from these funds through dividend sharing, interest and capital gain distributions.

I recommend: Investment Company Institute offers in depth information concerning the different types of closed-end funds, including closed-end bond funds, investment trusts, closed-end mutual funds and closed-end stock funds. This company also has information about the role of a closed-end management investment company. Nuveen Investments offers information about the fundamentals of closed-end investing, including the benefits and risks.

Stay up to date on the latest news about closed-end bond funds

Closed end funds are updated frequently, sometimes as often as every business day. Knowing the current information about the closed-end funds you invest in allows you to make informed decisions about how to manage your investment portfolio. Trends in consumer spending habits, world events, industry specific events and political events can all affect closed-end funds. Even if you use an investment manager, you should still stay up to date on the values of your funds.

I recommend: You can find news and updates about closed-end funds on the Closed-End Fund Association website. This website maintains news articles for the past three years. Morning Star offers closed-end fund reports and news articles. You can also get fund analysis by becoming a member of the website.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Consult with a financial advisor to determine the type of closed end fund that best suits your individual investing preferences.

Closed-end funds can be a powerful investment tool for your business portfolio. One of the reasons investors choose closed-end funds is that their fees are typically lower than mutual funds. They also don’t succumb to market fluctuations like mutual funds or stocks. If investors want to sell closed-end funds, they have to sell them on the market.

Closed-end funds give you flexibility in that you can use stop or limit orders. You can also trade these shares any time during the market’s session. To start investing in closed-ends funds, do the following:

1. Open an account with an online broker to start investing in closed-end funds.
2. Use NYSE Euronext and AMEX as guides for investing in closed-end funds.
3. Get financial information on closed-end funds through investment research companies' websites.

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Open an account with an online brokerage firm to invest in closed-end funds

This should be one of your first steps toward investing in closed-end funds. Consider going with an online discount brokerage firm so you don't have to pay high fees. Online brokers also have closed end fund information, including the objectives, price and performance, dividend and investment trusts. Many online brokers are flexible in that you can execute your trade by phone, online, or using a mobile device.

I recommend: TD Ameritrade lets you look at the closed-end fund’s chart over recent months. It also allows you to see the closed-end management investment company and investment trusts. You’ll also want to look at E*Trade Financial, which has all the information you’ll find at TD Ameritrade. However, it has two additional features: analyst research and insider activity. Insider activity gives you insight into seeing who is buying versus selling.

Use the NYSE Euronext and AMEX exchanges as guides for investing in closed-end funds

Both the NYSE Euronext and AMEX exchanges are great resources for closed-end mutual funds. These exchanges are well-known not only in the U.S., but also around the world. They list closed end fund information, such as a closed-end fund's volume, giving you a gauge on the activity. Volume can help you time your buy and sell opportunities. If the volume is light, this might not be a good time to buy. On the other hand, if the volume is heavy, you might want to buy. Of course, you'll want to look at other factors, such as the price.

I recommend: NYSE Euronext shows listed closed-end funds, such as closed-end bond funds and closed-end stock funds. You can click on a closed-end fund to get detailed information, including its listing date, the closed-end management investment company, and other information. You’ll also want to look at AMEX, which lists more than 150 closed-end funds in various industries, including global equity funds and tax-free bonds.

Use investment research market companies to invest in closed-end funds

You can also find in-depth information on closed-end funds on these companies' websites. Studying the analyst's report and its buy and sell recommendations provide great benefits to you. It doesn't hurt to get a second opinion; you can compare your closed-fund's analysis to that of the analyst's. You can customize your search on closed-end funds, based on the category or yearly returns.

I recommend: Check out Morningstar, since it's not only a leader in investment research, but it offers comprehensive analysis on closed-end funds. You must subscribe to the service. ETFConnect also provides information on closed-end funds, including fund sponsors and industry links.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Make sure you know if the closed-end fund charges a discount or premium before you invest in it.

You’ve decided to invest in closed-end funds. You have a solid background on what these securities are and how they work. However, to be successful in trading closed-end funds, it’s important to keep abreast of what’s happening in this market.

You can subscribe to magazines, but information may be old by the time you read their news. That’s why you should use the Internet as your source. You can quickly get up-to-date information, such as what the total assets of closed-end funds are. When it comes to closed-end funds news and trends, do the following:

1. Use financial websites to acquire the latest news and closed-end fund information.

2. Get the current trends on closed-end funds by studying online publications.

3. Visit associations’ websites to obtain current closed-end information.

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Get the latest news on closed-end funds from financial websites

Financial websites don't just provide profiles on investment trusts. They give you the latest trends on what's happening in the closed-end funds industry. For example, you can learn what the top and bottom performers are. You'll also likely read stories on why investors are buying or selling certain types of closed-end funds. Having this information can help you in your investment strategies.

I recommend: The Site-by-Site! Closed-End Funds Center provides comprehensive information on closed-end funds. For example, you can find out the top performers versus bottom performers. MarketWatch also offers information on closed-end funds, where you can read stories on why these securities are trading at discounted prices.

Read online publications to get the current trends on closed-end funds

Online publications can break down closed-end funds by categories. For example, you want to get the latest information on convertible securities funds. Online publications will give you the names of closed-end bond funds that make up this category. You can then hone in on the fund that interests you in order to get information, such as its net asset value and market price. Online publications can also advise you on how to trade closed-end funds.

I recommend: Barron's offers in-depth information on closed-end funds. It breaks down these securities by categories, such as world equity funds, U.S. mortgage funds and others. You can click on the category to get more detailed information on the funds. Investor’s Business Daily also provides information on closed-end funds.

Get the latest closed end fund information through associations

Associations can provide valuable information on closed-end mutual funds. For example, they can give you statistics, such as whether the total assets of closed-end funds increased or decreased in the past year or quarter. You may even want to compare taxable bond closed-end funds to equity closed-end funds. Associations' websites will give you this data.

I recommend: The Investment Company Institute (ICI) has statistics on combined assets of closed-end stock funds. It breaks down this information by the type of fund as well as the period. The Closed-End Fund Association (CEFA) has articles on how a closed-end fund performed during a quarter. These articles are written by a representative from a closed-end management investment company.

Along with mutual funds and unit investment trusts, closed-end funds are one of the three major types of investment companies in the US. Unlike traditional investments, closed-end funds are unique in that they only offer investors a fixed number of shares, which they then only buy and sell on secondary markets. In general, these funds do not repurchase shares, meaning investors have their shares until the fund liquidates its assets.

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ETF

ETFs, or exchange-traded funds, are a pool-style investment similar to mutual funds. Unlike mutual funds, which a fund company buys and sells, investors can buy and sell ETFs on the open market.

I recommend: Before buying into a closed-end fund, check out Morningstar's comparison of mutual funds and ETFs.

Net asset value

To find the net asset value of a closed-end fund. You deduct its total liabilities from its total assets. Unlike mutual funds and unit investment trusts, regulations allow closed-end funds not to report their NAV's every day.

I recommend: The U.S. Securities and Exchange Commission is a good source for information about closed-end funds and other investment companies.

Interval fund

Interval funds are closed-end funds that occasionally offer to buy back investors' shares in the company. They are generally more flexible than traditional closed-end funds.

I recommend: For a good introduction to interval funds, read the information on the website of the Chartered Alternative Investment Analyst Association.

Leverage

Closed-end funds commonly use financial leverage. This means using borrowed money to increase returns on investments and to increase their profits. The strategy is somewhat risky, but it can produce outstanding results.

I recommend: Read through the explanation of leverage offered by Investopedia. For more advice on investing in leveraged funds, read the information from The Motley Fool.

IPO

Short for initial public offering, an IPO is the first time a company, or a closed-end fund, puts shares up for sale on the market. Once the IPO is over, investors can only buy and sell shares of the fund on secondary markets like the New York Stock Exchange (NYSE).

I recommend: Learn more about closed-end fund IPOs by visiting ADVFN.

Asset class

Closed-end funds make their money by investing in different asset classes. Real estate, equities, fixed income and money market assets are each separate classes.

I recommend: You can read a basic primer on asset classes by visiting the website of TIAA-CREF.