If you are an investor who is thinking of backing a closed-end fund, it is important that you understand what this type of fund is and what are its accompanying risks before you decide to invest. While closed-end funds have been known to pay off-their high distribution rate is one of the features that make these products so popular-the losses can be substantial especially if your portfolio can’t handle them.
Closed-End Funds: What Are They?
These funds are a kind of investment company that gets money from investors to purchase securities. Closed-end funds are like mutual funds in that they manage portfolios that include investments, such as stocks, bonds, and even illiquid securities. However, they differ from mutual funds in that in an initial IPO, closed-end funds will offer a set number of shares to be traded on the exchange.