They sell a specified number of shares at one time, at the time of initial public offering, and they do not do sale of shares on recurring basis. After the initial offer, the shares trade on a secondary market like Nasdaq Stock Market or the New York Stock Exchange. Once the shares show their presence in the secondary market, the market forces take over and the value of the share may be more or less than the shares? net asset value (NAV). The shares of this fund are not redeemable. No legal obligation on the part of the management of the closed-end fund to buy back its shares from the investors, if demanded. But there is an exception to this rule. Some funds, known as interval funds, offer to repurchase the shares at pre-notified periods. The management and investment portfolios of these funds are managed by entities known as ?investment advisers,? registered with the SEC. The investment objectives of the funds may be different, and they may have varied strategies and investment portfolios. The risks involved, volatility, expenses and fees may be different.



Closed-end funds are tightly controlled by SEC registration and regulations, and they have to comply with numerous restrictions put on them with a view to protect the interests of the investors. They are regulated primarily under the Investment Company Act of 1940 and the rules adopted under that Act. They are also subject to the Securities Act of 1933 and the Securities Exchange Act of 1934.

Some special features of the fund are:

It is closed to new capital once it begins operating and the shares are traded at the stock exchanges and never redeemed directly by the fund. ?Another distinguishing feature of the fund is the common use of leverage or gearing to enhance returns. CEFs can raise additional investment capital by issuing auction rate securities, preferred shares, long-term debt, and/or reverse-repurchase agreements, although this is rare in the USA outside of income-focused funds. In doing so, the fund hopes to earn a higher return with this excess invested capital.?

When this fund is floated through the issuance of preferred stock, two types of shareholders come into being. Preferred stock shareholders and common stock holders! Preferred stock holders stand to gain from expenses based on the total managed assets of the fund. Total managed assets include both the assets attributable to the purchase of stock by common shareholders and those attributable to the purchase of stock by preferred shareholders. The common shareholders are in a slightly disadvantageous position. The expenses charged to the common shareholder are based on the common assets of the fund instead of the total managed assets of the fund. This has the telling effect on the profits being apportioned to the common shareholders. For all practical purposes, closed-end funds are traded as stock, and therefore, a customer will have to pay the brokerage on trades, on identical rates, as applicable in stock exchanges.

The fund operates with low or no cash position. The funds do not operate on regular basis from the point of view of cash transactions and the existing investors can not avail the benefit of redemption from the office of the fund managers. So, within the investment parameters, the fund remains fully invested. The net yield, should, therefore be higher as the chances of cash remaining idle or unutilized are nil.

Some other strength related to this fund is--they aim to minimize yield dilution, leverage, discount enhancing yield, etc. Each one of these needs to be studied in detail by the prospective investor.

Investors have several features that work to their advantage to enhance yield. From the point of view of the fund managers, the assets remain fully invested and leveraging to maximize the yield is possible within the framework of rules governing the fund.