Closed-End Fund

A closed-end fund raises money through an initial offering and then invests it. After that, investors who want to buy or sell shares trade them with other investors on the stock exchange, rather than with the fund itself. The fund does not normally create or redeem shares.

Because the share price is set by supply and demand, it often differs from the fund's net asset value. When the price is below net asset value, the fund trades at a discount; when above, at a premium.

For example, a closed-end fund with a net asset value of 10 per share might trade at 9, a 10% discount, giving buyers access to its investments at less than their market value.

Closed-end funds are well suited to less liquid investments, such as private companies, property or infrastructure, because the manager does not need to sell assets to meet withdrawals. Many can borrow to increase returns. Investment trusts in the United Kingdom are a well-known form of closed-end fund.