What is a closed-end fund?

A closed-end fund (CEF) is a registered investment company that raises a fixed amount of capital in an initial public offering and then lists its shares on a stock exchange. After the offering, the fund does not continuously issue or redeem shares. Investors who want in or out trade shares with each other on the exchange, the same way they would trade a stock.

Because the share count is fixed, the market price of a CEF is set by supply and demand for the shares, not by the value of the portfolio. That is the defining feature of the structure: the price can sit above or below the net asset value (NAV) of the underlying holdings, sometimes for years.

Why the structure matters

Since the manager never has to meet redemptions, a CEF can hold less-liquid assets — municipal bonds, bank loans, private credit, small-cap stocks — and can use leverage (borrowing or issuing preferred shares) without being forced to sell in a downturn. That flexibility is why many income strategies live in the CEF wrapper. It is also why CEFs carry risks that open-end funds do not: leverage magnifies losses, and the discount can widen when investors want to sell.

Vocabulary you will see on this site

• NAV — the value of the portfolio, net of liabilities, per share.
• Premium/discount — how far the market price sits from NAV, in percent.
• Distribution — the regular cash payment, which may include income, capital gains and return of capital.
• Leverage — borrowed money or preferred shares used to buy more assets than shareholders' capital alone would allow.