Editing Closed-end fund (section)

==Distinguishing features==
A closed-end fund differs from an open-end mutual fund in that:
* Closed-end fund shares are traded on stock exchanges, and can be purchased and sold through brokers at any time during market hours. An open-end fund can usually be traded only by transacting directly with the investment company that manages the fund, at a time of day specified by the investment company, and the dealing price will usually not be known in advance.<ref name="bodiebook">{{cite book |last1=Bodie|first1=Zvi |last2=Kane |first2=Alan |last3=Marcus |first3=Alan J. |title=Essentials of Investments |date=2010 |publisher=McGraw Hill/Irwin |location=New York |isbn=978-0-07-338240-1 |page=85 |edition=eight}}</ref>
* A closed-end fund usually trades at a premium or discount to the market value of its assets (known as net asset value, or NAV).<ref name="thaubook"/>{{rp|340–341}} In contrast, the price of an open-end fund cannot fall below net asset value, because the funds are required to transact with investors only at net asset value.<ref name="bodiebook"/>{{rp|86}}
* Closed-end fund investors who wish to exit the investment can do so only by selling the funds' shares to other investors on stock exchanges. In contrast, open-end funds are redeemed directly by the fund at net asset value.<ref name="bodiebook"/>{{rp|85}}
* In the United States, a closed-end company can own unlisted securities.<ref name="SECClosedEndFund" />

Another distinguishing feature of a closed-end fund is the common use of [[Leverage (finance)|leverage]] (gearing) to obtain new money to invest after the fund's inception. This can be done by issuing [[preferred stock]], [[commercial paper]] or [[rights offering]]s. Leverage amplifies gains when the market prices of the fund's investments rise, but it also amplifies losses when market prices decrease. This increases the volatility of a leveraged fund's net asset value, compared with an unleveraged peer.<ref>{{cite news |last1=Braham |first1=Lewis |title=Closed-End Bond Funds Sell at Steep Discounts |publisher=Barron's |date=May 1, 2023}}</ref><ref>{{cite book |title=Thau p. 340-341}}</ref>

The amount of leverage a fund uses is expressed as a percent of total fund assets (e.g. if it has a 25% leverage ratio, that means that for each $100 of total assets under management, $75 is equity and $25 is debt). In some cases, fund managers charge management fees based on the total managed assets of the fund, which includes leverage. This further reduces the income benefit of leverage to the common shareholder, while retaining the additional [[volatility (finance)|volatility]].

Leveraged funds can seem to have higher expense ratios—a common way that investors compare funds—than their non-leveraged peers.  Some investment analysts advocate that expenses attributable to the use of leverage should be considered a reduction of investment income rather than an expense, and publish adjusted ratios.

Since stock in closed-end funds is traded like other stock, an investor trading them will pay a brokerage commission similar to that paid when trading other stocks (as opposed to commissions on open-ended mutual funds, where the commission will vary based on the share class chosen and the method of purchasing the fund). In other words, closed-end funds typically do not have sales-based share classes with different commission rates and annual fees. The main exception is loan-participation funds.