The Motley Fool Discussion Boards
Retirement Discussions / Retired Fools
|Subject: Re: Closed End Mutual Funds||Date: 3/19/2001 1:31 PM|
|Author: GrayWulff||Number: 6390 of 20149|
The fund then trades like a stock on a stock exchange and can be traded during the day. The strange thing about a closed end fund is that it will almost always trade at a discount to its NAV !
It is strange isn't it? But it seems to be true. I think it boils down to liquidity and popularity. Open ended funds are by their very nature more liquid. If a large investor wants to buy, then the fund just buys more of the underlying stocks and sells if he wants to sell (presumably the underlying stocks are liquid.) With a closed end fund that doesn't happen; the investor must find another fund holder who is willing to complete his transaction. So, that makes people less willing to hold the closed end fund.
Another reason is that many closed end funds have no set date when the underlying stocks will be liquidated and the proceeds returned to the investors; or in some cases the liquidation date is many years in the future. Long time spans make it unprofitable for abitraguers (sp?) to step in and bring the NAV in line.
|Copyright 1996-2016 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|