* According to the Investment Company Institute
(www.ici.org), closed-end funds had a total of $285.8
billion invested as of September 2006.
* For the third quarter of 2006, there were 196 closed-end
* Shares of closed-end funds are traded on the stock
* Shares of closed-end funds can trade at a discount or a
premium to their net asset values.
A closed-end fund issues a fixed number of shares, and when all
the shares issued are sold, no more are issued. In other words,
closed-end funds have fixed capital structures. Investors who want
to invest in closed-end funds after all the shares are sold (for the first
time) have to buy them from shareholders who are willing to sell
them in the market. Shares of closed-end funds are listed on stock
exchanges and over-the-counter (OTC) markets, whereas shares of
open-end mutual funds are bought from and sold to the investment
company sponsoring the fund. As a result, share prices of closed-end
funds are a function not only of their net asset values but also of the
supply of and demand for the stock in the market.
A unit investment trust (UIT) is another type of closed-end
fund. A unit investment trust issues a fixed number of shares, which
are sold originally by the sponsor of the trust. The proceeds from
the sale are used to buy stocks or bonds for the trust, which are held
to maturity. Unlike an open-end or closed-end fund, no active trading
of the securities in the portfolio takes place. Consequently, no
active management of the trust takes place, which should translate
into lower management fees, although this is not always the case. A
trust has a maturity date, and the proceeds are then returned to the
shareholders of the trust.
|1. Issue a fixed number of shares,
which are sold to original
2. Shares (after issue) are
traded on the stock
3. Shares may trade at,
above, or below net
4. Share prices depend not
only on the fundamentals but
also on the supply of and
demand for the shares.
5. Closed-end funds do not
mature; UITs do.
|1. Issue an unlimited number
2. Shares (including new shares)
may be bought (and sold) from
(and to) the fund.
3. Shares trade at net asset value.
4. Share prices depend on the
fundamentals of the assets
in the fund.
5. Open-end funds do not mature
except for zero-coupon funds
All UITs charge sales commissions, whereas investors in
open-end funds have a choice between the purchase of a fund that
does or does not charge a sales commission. Table 15–1 illustrates
the differences between open-end and closed-end funds.
* What closed-end funds are and how they work
* The different types of closed-end funds, unit investment
trusts, and real estate investment trusts
* The different sources of risk of closed-end funds
* Times when it is advantageous to invest in individual securities
or to use mutual funds or closed-end funds
Categories in Trading Mistakes
Lack of Trading Plan
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Lack of Discipline
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