Closed-End Fund (CEF) vs. Open-End Fund

Instructor: Ian Lord

Ian has an MBA and is a real estate investor, former health professions educator, and Air Force veteran.

In this lesson, we will look at the differences between closed-end funds and open-end funds, with special attention given to how these funds are bought and sold as well as priced.

Closed-End and Open-End Funds

Bob is an investor who wants his portfolio to benefit from diversification but doesn't have the time or energy to manage his own investments. Rather than try constantly to pick which stocks he should buy and sell, he just wants to buy one or two investments that take care of all that for him. His options include investing in closed-end or open-end funds. Let's help Bob understand what these funds are and how they compare so he can make a decision about his investments.


To Bob's surprise, he is already familiar with open-end funds. An open-end fund refers to a regular mutual fund. When Bob sends his money, to the fund he receives new shares in the fund. Those funds are then used by the fund manager to buy stocks, bonds, or other investments according to the prospectus or plan for the fund. For example, the prospectus might say the fund only invests in US-based companies or focuses on a segment such as real estate or healthcare.

When Bob wants to cash out, those shares are returned to the fund company and taken out of circulation. If enough shares are sold, the mutual fund company will have to sell some of the underlying investments to get Bob his money. Buying and selling of open-fund shares are transactions between the investor and the mutual fund company

A closed-end fund combines elements of a mutual fund and stock. An investment company creates shares through an initial public offering (IPO). Once these shares are created, they are traded from investor to investor over an exchange on the open market like a stock. Unlike a mutual fund, shares are not destroyed when an investor sells. Only a limited number of shares are in existence. Management of the fund remains much the same as a mutual fund; a fund company manager using the investors' money buys and sells different kinds of investments according to the prospectus.

To unlock this lesson you must be a Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use

Become a member and start learning now.
Become a Member  Back
What teachers are saying about
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account