When a fund is "closed," it means it doesn't accept new money, but shares can still be bought on the exchange
Closed-end funds are similar in some ways to open-end (mutual) funds. Both of these vehicles are managed by professional money managers and also diversify their investments. However, when it comes to differences between open-end and closed-end mutual funds, the latter are likely to be passively-managed and can be more focused (i.e., on a specific country or sector only).
As with open-end funds, there are many options to invest based on geographical area, investment style, or sector.
The major difference is that closed-end funds trade on stock exchanges, just like plain stocks do. Thus, to purchase one, an investor will need to pay a spread (buy at the ask and sell at the bid) as well as incur other transaction costs such as brokerage commissions.
Closed-end funds used to be a popular alternative to mutual funds, but now investors have become more interested in exchange-traded funds (ETFs).
When buying mutual funds, new money flows into the investment pot, which the manager uses to invest on behalf of clients. On the other hand, buying shares in a closed-end fund is like buying a stock: No new shares are created, unless a decision is made by the company to increase the float. Therefore, at times, a lack of liquidity is one of major disadvantages of closed-end funds.
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In this section, we cover closed-end funds, now forgotten by many investors. Still, these can be viable investment venues.