Closed-end Fund

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A closed-end fund, like the more common and familiar mutual fund, is an investment company that offers its investors the opportunity to invest in a wide range of securities, both in the United States and abroad. Closed-end funds and mutual funds both offer shares in the fund to investors, but they differ in two critical ways. First, mutual funds are continuously open to new investors. If you want to invest in a mutual fund, the fund will take your money and simply create more shares in the fund and give them to you. Existing shares are not worth less because your money has simultaneously increased the size of the fund's assets. Because of this characteristic, mutual funds are "open-end" funds. Closed-end funds, however, have a fixed number of shares, and that number does not increase. It means that there are no new shares available to be bought (except under special circumstances), hence the name "closed end." Second, the only way a mutual fund investor can get his money out is to sell the shares back to the mutual fund, known as redeeming the shares. He will receive back money equal to the current value of the fund's shares. Investors in closed-end funds cannot sell their shares back to the fund, but must sell them to other investors in the open stock market, wherever the shares of the closed-end fund are listed [see listing (stock market)]. This means the price varies subject to market supply and demand. Closed-end funds actually originated before mutual funds, but the number of mutual funds has increased dramatically. In 2009 there were around 620 closed-end funds but well over 7,000 mutual funds.