Investing Classroom

Course 405: Closed-end Funds vs Mutual Funds and ETFs
In this course
1. Introduction
2. CEFs and Mutual Funds
3. CEFs and ETFs
Course Catalog

CEFs and Mutual Funds

CEFs do share some traits with traditional open-end mutual funds:

  • Both have an underlying portfolio of investments with a net asset value
  • Both are run by a professional management team
  • Both have expense ratios and, typically, fee schedules
  • Both may offer distributions of income and capital gains to investors

However, traditional mutual funds issue and redeem shares daily, at the end of business, at the fund's net asset value. CEFs do not issue or redeem shares daily.

Instead, CEF shares trade on an exchange intraday, like stocks. The share price for a CEF is set by the market. The share price only rarely, and by sheer coincidence, equals the CEF's net asset value.

Also unlike traditional mutual funds, CEFs may issue debt and/or preferred shares to leverage their net assets. That leverage can increase distributions (income) but also increases volatility of the net asset value.

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