Closed-end fund

A closed-end fund is a type of investment fund that raises a fixed amount of capital through a single initial public offering and then issues a set number of shares that trade on a stock exchange, much like a company's stock. Unlike a typical mutual fund, a closed-end fund does not continuously issue new shares or redeem existing ones at net asset value, once the initial offering is complete, the number of shares outstanding generally stays fixed.

Because closed-end fund shares trade among investors on the open market rather than being bought from or sold back to the fund itself, their price is set by supply and demand and can drift meaningfully away from the value of the fund's underlying holdings. It is common for a closed-end fund to trade at a discount to net asset value, sometimes for years at a time, and less common but still possible for one to trade at a premium.

Closed-end funds often use leverage, borrowing money to invest more than the capital raised from shareholders, which can boost both gains and losses relative to the underlying portfolio. They are also popular vehicles for less liquid asset classes such as municipal bonds or private investments, since the fixed share count means the manager never has to sell holdings to meet shareholder redemptions the way an open-end fund manager sometimes must.