3.5.2. Management Companies: Closed-End Funds
Closed-end management companies also offer shares of a fund that contains a portfolio of securities. Unlike open-end funds, closed-end funds raise a fixed amount of capital through an initial public offering, after which they no longer issue new shares. Closed-end funds also differ from mutual funds in that they can be traded on the secondary market like a stock. For this reason, we say that shares of closed-end funds are negotiable, since their ownership can be transferred across individuals.
Closed-end funds purchased during an IPO are not subject to sales loads, but the broker will usually charge a commission on the trade. Since they are sold only once by the investment company, closed-end funds do not incur the ongoing cost of creating and redeeming shares, and they typically have lower expense ratios than open-end funds. Because of its fixed nature, the closed-end fund structure gives the portfolio manager freedom to mai