How to Invest in Closed-End Mutual Funds

Closed-end mutual funds offer a specific number of shares for sale. After the initial offering, closed-end mutual fund shares are traded on a secondary market, like the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotations (NASDAQ). In this way, they are handled much like common stocks. Share prices for closed- end mutual funds are set according to demand, rather than net asset value. More information can be found by visiting the Closed-End Fund Association's website (a link to the site is located in the Resources section below).

Instructions

Difficulty: Moderate

Things You’ll Need:

• Internet access
• Financial advisor or broker
• Money to invest

Instructions

1. Take the time to carefully consider your objectives and determine the ways in which a closed-end mutual fund may help you to meet them. Realize that closed-end funds vary widely in terms of investment objectives, portfolios and strategies used.
2. Recognize that closed-end mutual funds may carry risks that differ from those of other mutual funds. Learn what to expect in terms of volatility and expenses.
3. Do your research before you invest in closed-end funds. These funds are regulated by the Investment Company Act of 1940, as well as the Securities Act of 1933 and the Securities Exchange Act of 1934.
4. Understand that shares of a closed-end mutual fund are not redeemed, allowing the fund to invest more of its assets in less liquid securities.
5. Realize that net asset value numbers are less meaningful with closed-end funds than they are with other mutual funds. Closed-end funds may not receive daily holding valuations for all assets.
6. Research and compare closed-end funds at Closed-EndFunds.com. Determine the funds that fit best with your investment objectives.
7. Understand that you will need to follow the same procedures to invest in closed-end funds as you do to buy stocks. The market price of shares is set according to competitive bidding.
8. With the assistance of a broker or financial advisor, purchase shares of the closed-end fund of your choice or purchase shares via a transfer agent.

Tips & Warnings

• You are able to control the timing of your share purchases with closed-end mutual funds. Using limit orders, you can set the price you want to pay; your order will not be executed unless and until the share prices match your designated order price.
• Some funds require a brokerage account while others allow investors to purchase shares directly from a transfer agent, eliminating the need for a broker.