25. Mutual Funds 4: Closed-Ended Funds

We sometimes hear about closed-ended funds which are a type of fund that shares similarities with standard mutual funds which are open-ended, but also has some very key difference in particular with respect to how money flows in and out of the funds.

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[yared94]

What are the big differences between an investment company and a CEF?

[savingandinvesting]

@yared94 A CEF is a type of investment company in the U.S. - the other types are mutual funds (open-ended), exchange-traded funds, and unit investment trusts. In other words a closed-end fund is a bit more specific and has certain characteristics that are particular to it as noted in video as well. Hope that helps, Michael.

[zacharyfmtaylor]

So, how does a closed-ended fund pay their staff after the initial capital is raised? How do the managers make money from the fund years after the initial sale of shares?

[savingandinvesting]

@zacharyfmtaylor The closed end fund will typically charge a management fee on the amount managed/money raised in fund. The managers get paid from these fees - and there may be other fees as well and an expense ratio is also applicable to closed end funds. Clearly all of the fees eat into the performance of the fund - when the closed end fund is bought or sold, there are typically costs involved as well (which go to the broker) - hope that helps, Michael.

[acgv88]

so what is the difference between a close-ended fund and an ETF?

[savingandinvesting]

ETFs are open-ended (like mutual funds) (or Unit Investment Trusts) - if more demand for ETF, additional units can be created. An 'authorised participant' can create addition ETF 'creation units' by exchanging underlying securities for more ETFs, allows liquidity to be created. Ensures ETFs never trade with too much of a difference to value of underlying securities. Might not be case with typical closed-ended fund where supply and demand can create valuation differences to underlying. Best R.

[amar039]

great explanation ! thanks for posting these videos !

[midvon86]

thanks for coming back

[shakaama]

1. is it by invite only?

2. is there a minimum to invest?

3. is it for private individuals?

4. to sell your shares you have to sell your own to another individual?

5. what does the manager do compared to a regular open ended mutual fund?

6. are there tax differences?

7. does it have anything to do with an ipo?