A closed-end fund can look almost identical to an exchange traded fund (ETF) to the novice investor. A closed-end fund can be bought and sold throughout the day just as an ETF can, but that is where the similarities end, reports Tim Middleton for MSN Money. Originally, closed-end funds were created to satisfy demand among sophisticated investors who wanted a specialized investment vehicle to enhance their portfolios. In other words, closed-end funds tend to be for advanced students while ETFs are for investors of all levels. So how can one tell the difference between the two?
The main difference between the two types of funds is in the pricing and the portfolio structure. In general, ETFs are more transparent and cheaper than closed-end funds. Closed-end funds’ holdings are rarely disclosed and they trade either at a premium (above its net asset value) or a discount (below its net asset value). Another sign that you’re dealing with a closed-end fund is if there is little or no published information on it.
Before getting into closed-end funds, make sure you’ve studied them thoroughly and that they fit with your investment strategy.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.