Mutual Funds vs. Closed-End Fund Shares

• With both a regular mutual fund and a closed-end fund, the fund company creates a portfolio of assets and then issues them to investors. When you buy a share of either one, you have an equal share of ownership in all of the securities. With a regular mutual fund, anytime someone wants to buy a share, more shares are created by the fund company. With a closed-end mutual fund, only a fixed number of shares can be created and sold.
  
  

Net Asset Value vs. Market Pricing

• When you buy a share of a mutual fund, you buy it at the current net asset value. This net asset value is determined by the value of the underlying assets in the fund. When you buy a share of a closed-end fund, it may or may not be at the net asset value of the underlying assets. If you buy the shares directly from the fund company, it should be at net asset value. After all of the shares are sold, however, you have to buy them in the open marketplace, and as a result you could pay more or less than net asset value.
  
  

Finding Bargains

• As an investor, it is possible to find a bargain when investing in the closed-end mutual fund market place. Since these mutual funds do not always trade at their net asset value, you can sometimes get shares that are priced below the current net asset value. This means that if the closed-end fund ceased operations after you bought the shares, you would immediately make a profit. You can also receive dividend payments from closed-end funds after you buy the shares.
  
  

Different Investments

• Closed-end mutual funds have different rules about what they can invest in when compared to traditional mutual funds. Traditional mutual funds must invest in liquid securities that can be sold within seven days on the market. Since closed-end mutual funds are different, they do not have to abide by the same rules that are set forth by the U.S. Securities and Exchange Commission. Instead, these funds can invest in less liquid securities and create different investing strategies for the portfolio.