subject: Closed End Funds [print this page] A closed end fund is usually set up by a fund manager that markets a company to various potential investors through offering them an exclusive membership.
Clients that are offered this exclusive membership usually have large pockets, a long history of large investing, and large portfolios.
If the fund manager can successfully bring these large investors together and combine their funds, he will have a lot of money, or leverage, to work with when navigating the markets as long as he stays within the restrictions of the fund charter that is signed by his clients. Still, the ability for the fund manager to do what he believes is best is much larger.
Closed end funds are often confused with mutual funds, but they are essentially different both in structure and personality. One major difference is the size of the accounts that can be opened through mutual funds.
Almost anyone with a savings account that will not be needed in the future can invest in mutual funds. Meanwhile, closed end funds are only an option for those with a lot of money to invest, or big investors.
Closed end funds require an extensive amount of trust between the investor and the fund manager because of the large amount of money that is being dealt with.
Managers have a lot of freedom to make quick decisions in order to get the most out of their buying and selling power. Closed end fund companies are one of only three investment companies that the American Securities Exchange Commission, SEC, will license to handle trusts and funds.
Closed end companies stand apart from many other companies because they are considered to be an in-house stock. This means that they are traded directly on the stock market.
On the other hand mutual funds are bought directly from the fund. In-house stocks are seen as flexible and independent from the market. They are also considered to be mid-term to long-term investments because they are not ideal for short term investments and quick wins.
In-house stocks can be traded at any time of the day, whereas other types of stocks must be traded at the end of the market day.
The value of a closed end fund does not directly translate to the value of another type of fund because it is calculated differently.
The closed end funds depend on these things as well as the premium or discount that is placed on the stock by the market. This premium or discount is the difference between the real value of the company's assets and the company's stock price.
It is considered to be a premium when this difference is positive. If the difference is negative, it will be considered to be a discount.
The value of shares are usually much smaller than the total assets found in the fund. In any other type of fund, this would indicate an ideal investment.
However, this means that an investor must have enough funds to invest in it and be patient enough to allow the investment to mature.
Some other features of a closed end fund is that they sell certain amounts of shares at a time, which is usually a time of initial public offering, and they do not sell shares often.
Closed end funds can be ideal for the right investor, but be sure to do enough research that you can fully trust your funds manager.
