Closed-End Funds Key Terms

Learn about closed-end funds by discovering key terms

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.

 

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

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