What distinguishes a closed-end fund from an open-end fund?
Understand the Problem
The question is asking for the differences between closed-end funds and open-end funds, specifically looking for the unique characteristic of closed-end funds. It tests the understanding of investment fund structures and their trading mechanisms.
Answer
Closed-end funds have a fixed number of shares traded on secondary markets. Open-end funds issue and redeem shares at NAV with the fund administrator.
The main differences between closed-end and open-end funds include: Closed-end funds have a fixed number of shares and trade on the secondary market, often at prices that do not equal the fund's net asset value (NAV). Open-end funds continuously issue new shares and allow redemption at the NAV.
Answer for screen readers
The main differences between closed-end and open-end funds include: Closed-end funds have a fixed number of shares and trade on the secondary market, often at prices that do not equal the fund's net asset value (NAV). Open-end funds continuously issue new shares and allow redemption at the NAV.
More Information
Closed-end funds trade more like stocks, meaning their prices are determined by market supply and demand and can be at a premium or discount to NAV. Open-end funds are typically bought and sold at the net asset value at the end of the trading day.
Tips
A common mistake is assuming closed-end funds operate like open-end funds where the supply of shares varies. Remember that closed-end funds have a fixed supply and trade on the stock exchange.
Sources
- Closed-End vs. Open-End Investments: What's the Difference? - investopedia.com
- Open-End Vs. Closed-End Funds | Bankrate - bankrate.com
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