Closed-end funds | What are CEF's?

Closed-end funds vs. mutual funds and ETFs

Learn the similarities and important differences between closed-end funds, mutual funds, and ETFs.

What is a closed-end fund?

Even though they have been traded in the US for over a century, closed-end funds (CEFs) are not well understood. A common misunderstanding is that a closed-end fund is a type of traditional mutual fund or an exchange-traded fund (ETF).

What is a closed-end fund?

Closed-end funds vs. mutual funds and ETFs

Learn the similarities and important differences between closed-end funds, mutual funds, and ETFs.

Closed-end fund (CEF) expenses

Like mutual funds and ETFs, a CEF has a reported expense ratio. However, there are a couple of factors that make CEF expense ratios a little different.

Closed-end fund (CEF) distributions

Except for a handful of exceptions, CEFs themselves do not pay taxes. Instead, like open-end mutual funds and ETFs, CEFs pass the tax consequences of their investments onto their shareholders.

Return of capital: Part 1

Perhaps no other closed-end fund issue is as vexing as return of capital, yet it is critical to understand.

Return of capital: Part 2

In the Return of Capital Part I article, we explained why return of capital occurs, and briefly outlined the different types of return of capital (RoC). In Part II, we'll delve further into pass-through and constructive return of capital.

Return of capital: Part 3

In Return of Capital Part I article, we explained why return of capital occurs, and briefly outlined the different types of return of capital (RoC). In Part II, we delved further into pass-through and constructive return of capital. In Part III, we will discuss destructive return of capital.

Total return vs. distribution rate

Many income-seeking investors are drawn to CEFs because of their relatively high distribution rates. Because CEFs have closed-end structures, their capital is relatively stable.

Leverage

Many income-seeking investors are drawn to CEFs because of their relatively high distribution rates. High distribution rates are often the result of CEFs' use of leverage via the issuance of debt or preferred shares.

Closed-end fund (CEF) discounts and premiums

Whatever the reason for a CEF's discount or premium pricing, it is crucial that CEF investors realize that discounts and premiums exist.

CEF relative discounts and premiums

This lesson presumes an understanding of absolute discounts and premiums. For a refresher on that, see CEF Discounts and Premiums. Here, we will consider relative discounts and relative premiums.

Closed-end fund IPO premium

Some investors eschew all CEF investing because of how CEFs raise their initial capital. While we do not believe this is wise, there are some unique risks involved with purchasing a CEF at its IPO.

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