written by: Tim Plaehn•edited by: Rebecca Scudder•updated: 6/28/2011
Investors who wish a diversified portfolio and regular income with easy liquidity will find closed-end funds a beneficial addition to their list of investments, though with its own share of risks.
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Before investing in closed-end funds, it is good to know the distinction between closed-end funds and open-end funds, also known as mutual funds. With open-end funds, the investor can buy shares at any time by purchasing them from the mutual fund company. Mutual funds create and redeem shares to meet investor demand
A closed-end fund issues a pre-determined number of shares. Closed-end funds issue a fixed number of shares at the time of the initial public offering (IPO) which are then used for secondary trading in the securities exchange. Investors who want to buy or sell these shares have to trade in the secondary market. Closed-end funds are professionally managed and typically invested in equities, bonds or a combination of both.