This article delves into the concept of close-ended funds, explaining their meaning, operations, utility, benefits, and features.
A Closed-Ended Fund is a type of mutual fund or investment vehicle where a fixed number of shares are issued through an Initial Public Offering (IPO). Once issued, these shares are traded on stock exchanges like regular stocks. Unlike open-ended funds, investors cannot continuously buy or redeem shares from the fund; instead, transactions occur in the secondary market
Fixed Capital Base: After raising of the fixed amount of capital, no additional units are issued or redeemed by the fund. Investors can trade these shares in the secondary market.
Stock Exchange Listing: Shares of close-ended funds are listed on stock exchanges, allowing investors to buy and sell them at market-determined prices, which may differ from the Net Asset Value (NAV).
Predetermined Maturity Period:The maturity period of the fund is pre decided. The fund has a set time when it will mature
Professional Management: Like other mutual funds, close-ended funds are managed by professional fund managers who invest the pooled capital in various securities to achieve the fund’s objectives.
Close-ended funds cater to specific investment strategies and scenarios:
Long-Term Growth: These funds typically have a fixed tenure, often ranging from 3 to 7 years, encouraging long-term investments.
Diversification: They offer a diversified portfolio of stocks, bonds, or other securities, reducing risk.
Liquidity: Although funds are locked-in, investors can trade units in the secondary market, Providing liquidity