Closed-end funds are one of two major kinds of mutual funds, alongside open-end funds. Since closed-end funds are less popular, they have to try harder to win your affection. They can make a good investment — potentially even better than open-end funds — if you follow one simple rule: Always buy them at a discount.

What are the best closed-end funds?

Seven of the best closed-end funds for investors:

• The India Fund (IFN)
• Voya Emerging Markets High Dividend Equity Fund (IHD)
• ASA Gold and Precious Metals Limited (ASA)
• Eaton Vance Limited Duration Income Fund (EVV)
• BlackRock Taxable Municipal Bond Trust (BBN)
• BlackRock Core Bond Trust (BHK)
• PIMCO High Income Fund (PHK)

How do you value closed-end funds?

Both open-end and closed-end mutual funds calculate the per-share net asset value for the fund on a daily basis. The net asset value or NAV is calculated by taking the value of the fund’s assets, including cash, subtracting the liabilities or debts the fund might have, and dividing by the number of shares outstanding.

Are closed-end funds negotiable?

Closed-end funds often offer higher returns or better income streams than their open-end fund counterparts. The price of a closed-end fund fluctuates according to supply and demand, as well as the changing values of its portfolio’s holdings.

What is the downside to closed-end funds?

In a closed-end fund, investors cannot buy any unit after the New Fund Offer (NFO) period is over. The scheme restricts new investors from coming in. It also disallows existing investors from exiting until the end of the term.

Why closed-end funds are bad?

The bad side of a closed-end fund is when the fund’s managers use their closed-end structures to collect high fees from their captive investors. Many closed-end funds are all about collecting high fees from investors: initial offering fees and egregious management fees.

Who buys closed-end funds?

Unlike open-end funds, shares are not continually offered. Like other public companies, closed-end funds have a one-time initial public offering, and once their shares are first issued, they are generally bought and sold through non-affiliated broker/dealers and trade on nationally recognized stock exchanges.

What’s wrong with closed-end funds?

Just like open-ended funds, closed-end funds are subject to market movements and volatility. The value of a CEF can decrease due to movements in the overall financial markets. Interest rate risk. Changes in interest rate levels can directly impact income generated by a CEF.