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Concept
Closed-end fund
Summary
A closed-end fund is an investment vehicle fund that raises capital by issuing a fixed number of shares at its inception, and then invests that capital in financial assets such as stocks and bonds. After inception it is closed to new capital, although fund managers sometimes employ leverage. Investors can buy and sell the existing shares in secondary markets.
In the United States, closed-end funds sold publicly must be registered under both the Securities Act of 1933 and the Investment Company Act of 1940.
U.S.-based closed-end funds are referred to under the law as closed-end companies and form one of three SEC-recognized types of investment companies along with mutual funds and unit investment trusts.
Like their better-known open-ended cousins, closed-end funds are usually sponsored by a fund management company. The fund's charter, prospectus and the applicable government regulations specify the types of investments the fund manager is permitted to buy. Some funds invest in stocks, others in bonds, and some in very specific things (for instance, tax-exempt bonds issued by the state of Florida in the USA).
A closed-end fund differs from an open-end mutual fund in that:
Closed-end fund shares are traded on stock exchanges, and can be purchased and sold through brokers at any time during market hours. An open-end fund can usually be traded only by transacting directly with the investment company that manages the fund, at a time of day specified by the investment company, and the dealing price will usually not be known in advance.
A closed-end fund usually trades at a premium or discount to the market value of its assets (known as net asset value, or NAV). In contrast, the price of an open-end fund cannot fall below net asset value, because the funds are required to transact with investors only at net asset value.
Closed-end fund investors who wish to exit the investment can do so only by selling the funds' shares to other investors on stock exchanges. In contrast, open-end funds are redeemed directly by the fund at net asset value.
Official source
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Investment fund
An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages include an ability to: hire professional investment managers, who may offer better returns and more adequate risk management; benefit from economies of scale, i.e., lower transaction costs; increase the asset diversification to reduce some unsystematic risk.
Mutual fund
A mutual fund is an investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe ('investment company with variable capital') and open-ended investment company (OEIC) in the UK. Mutual funds are often classified by their principal investments: money market funds, bond or fixed income funds, stock or equity funds, or hybrid funds.
Unit investment trust
In U.S. financial law, a unit investment trust (UIT) is an investment product offering a fixed (unmanaged) portfolio of securities having a definite life. Unlike open-end and closed-end investment companies, a UIT has no board of directors. A UIT is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and is classified as an investment company. UITs are assembled by a sponsor and sold through brokerage firms to investors. A UIT portfolio may contain one of several different types of securities.