Close End Mutual Fund

In this session we want to describe all mutual fund one by one.

DEFINITION
Closed-end mutual fund or closed-ended fund has a set of number of shares issued to the public by the IPO (initial public offering).
When the fund has been opened, there are new shares issued; shares are usually not to exchange for cash or securities until the fund liquidates. An investor can get shares in closed-end fund by buying shares from a broker or other investor. This is definitely the opposite of an open-end fund wherein the transactions eventually involve the company’s fund to create new shares on the fly or redeeming shares.

ADVANTAGES OF INVESTING IN CLOSED-END FUND
1. It is closed to new capital after it begins operating.
2. Its shares are typically traded on stock exchange rather by directly redeemed.
3. It can be traded at market day at any time.
4. It usually has a premium or discount.
5. It is the common use of leverage or gearing to enhance returns. Closed-end fund could raise additional investment capitals by issuing auction rate, preferred shares, long-term debt and reverse-purchase agreement. By this, the fund can earn higher returns by the excess invested capital.

CLOSED-END MUTUAL FUND FUTURE PERFORMANCE
The closed-end mutual funds future performance has a direct influence on its current premium. It’s future performance is not anticipated at future expenses as measured by NAV (net asset value) per share.

EXAMPLE OF FUND WHERE YOU CAN INVEST
India Fund Inc (IFN) is considered a closed-end fund that invests in the stocks of Indian companies across a wide range of industries.
Morgan Stanley India Investment Fund (IIF) invests in the stocks of Indian companies.

QUOTE OF THE DAY:
There are two types of shareholders that are created when a fund leverages through the issuance of preferred stock: the preferred stock shareholders and common stock shareholders.
The preferred stock shareholders benefit from expenses that is based on the total managed assets of the fund while the common stock shareholders has the expenses changed that are based on common assets of the fund rather than the total managed assets of the fund.

CONCLUSION:
In the closed-end fund, the price of a share is determined by the value of the investments in the fund and by the premium placed on it by the market.

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