Closed-End Funds
Investment companies that raise capital once in an IPO of a fixed number of shares, which then trade on exchanges at market prices that can sit above (premium) or below (discount) NAV.
A common exam pattern probes pricing mechanics: closed-end shares trade continuously at market price, so investors pay brokerage commissions and can use margin or short sales — unlike open-end mutual funds, which are redeemed once daily at the next forward-priced NAV. After the IPO the fund issues no new shares and redeems none, so the secondary market alone sets price.
The classic trap conflates closed-end funds with ETFs: both are exchange-listed and trade intraday, but ETFs rely on an in-kind creation/redemption arbitrage that pins price near NAV, whereas closed-end funds have no such mechanism and routinely persist at meaningful discounts. Don’t confuse the IPO-then-no-redemption structure with a UIT either — a UIT holds a fixed, unmanaged portfolio to a termination date. Memory hook: “closed” means the door shuts after the IPO — no new shares, no redemptions.
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