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One of the most common questions we receive asks for a definition of a closed-end fund and a definition of an open-end fund.

A closed-end fund is an investment vehicle with a fixed number of issued shares, which are not normally redeemable for cash or securities until the fund liquidates. Because there are a fixed number of shares their value rises and falls according to demand and typically an investor can acquire shares in a closed-end fund by buying shares on a secondary market from a broker, market maker, or another investor

The price of a share in a closed-end fund is determined partially by the value of the investments in the fund, and partially by the premium (or discount) placed on it by the market. The total value of all the securities in the fund divided by the number of shares in the fund is called the net asset value (NAV) per share. The market price of a fund share is often higher or lower than the per share NAV: when the fund’s share price is higher than per share NAV it is said to be selling at a premium; when it is lower, it is said to be selling at a discount to the per share NAV.

In the UK an Investment Trust is an example of a closed-end fund; in the US they are called closed-end companies and form one of three SEC recognized types of investment companies along with mutual funds and unit investment trusts; in Australia they are known as Listed Investment Companies.

Also see open-end funds.

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