What is a Closed-End Fund?

Closed-end Funds refer to securities investment funds in which the total amount and period of issue of the fund have been determined at the time of establishment, and the total amount of issuance is fixed within a specified period after the completion of the issuance. Investors in closed-end funds cannot redeem fund shares from the issuer during the life of the fund. The realization of fund shares must be listed and traded through securities trading venues. The circulation of fund units adopts the method of listing on the stock exchange. Investors who buy and sell fund units in the future must conduct bidding transactions on the secondary market through securities brokers. ^[1]

Closed-end fund

Closed-end Funds refer to securities investment funds in which the total amount and period of issue of the fund have been determined at the time of establishment, and the total amount of issuance is fixed within a specified period after the completion of the issuance. Investors in closed-end funds cannot redeem fund shares from the issuer during the life of the fund. The realization of fund shares must be listed and traded through securities trading venues. The circulation of fund units adopts the method of listing on the stock exchange. Investors who buy and sell fund units in the future must pass

According to different standards, securities investment funds can be divided into different types-according to whether fund units can be added or redeemed, they can be divided into open-ended

The main difference between open-end funds and closed-end funds is that the latter has a long closing period, with a fixed number of issues, and holders cannot be redeemed during the closed period and can only be bought and sold on the secondary market. Open-end funds can be redeemed, and listed-trading open-end funds can also be bought and sold. Therefore, open-ended funds must be "always ready" for possible redemptions by holders,

The connotation of the discount rate is a reference to the net value of fund shares, which is a type of loss of the unit market price relative to the net value of fund shares. Therefore, the definition of closed-end fund discount rate is as follows:

The closed-end fund discount rate refers to the ratio of the difference between the fund's net value and unit market price and the fund's net value.

The size of the closed-end fund discount rate will affect the investment value of the closed-end fund. In addition to investment objectives and management levels, closed-end fund discount rates are an important factor in evaluating closed-end funds. For investors, there are certain investment opportunities for high closed-end fund discount rates.

Since the closed-end fund will be repaid or liquidated at its net value after the operation expires, the higher the closed-end fund's discount rate, the greater the potential investment value.

Closed-end funds are trust funds, which means that the size of the fund has been determined before issuance, and has been fixed for a specified period of time after the issuance.

Unlike open-end funds, closed-end fund shares remain the same, and dividends can only be distributed in the form of cash dividends but not in the form of dividend reinvestment. For closed-end funds that have been trading at a discount for a long time, dividends can play a role in increasing the investment value of the fund.

We use N0 to represent the unit net value of the closed-end fund before dividends, and D0 to represent the unit share dividend amount. It is assumed that the normal discount rate of the closed-end fund is P.

Compared with non-dividends, dividends increase the value of unit fund shares by P × D0, and fund dividends increase the investment value of closed-end funds, and the magnitude of this increase is positively related to the discount rate and the amount of dividends. In fact, because of the effect of closed-end fund dividends on the promotion of investment value, before large-scale dividends, closed-end funds are favored by funds, and the discount rate will be greatly reduced. However, in actual operation, investors should pay attention to whether the degree of reduction of the closed-end fund's discount has overdrawn in advance the extent to which the dividend has increased its value.

In China, closed-end funds are generally traded at discounted prices, so investors can use this discount for arbitrage at maturity. For example, the discount rate of closed-end funds that expires before the end of 2007 is about 20% on average. Suppose that investors are now buying open-end funds with a net value of 1 and closed-end funds with a net value of 1 yuan and a 20% discount rate. For open-end funds, purchase and redemption are based on net worth, so the cost of investors is 1 yuan, while for closed-end funds, the cost of investors is only 0.8 yuan, and investors hold two funds Due, there are precedents for closed-end funds now being opened. Both funds are redeemed at net value. Assuming there is no increase in net value, open-end funds are still redeemed at 1 yuan. Investors receive 0 yuan while closed-end funds. The fund is also redeemed at 1 yuan, and the investor's return is (1-0.8) /0.8=25%, which is the maturity arbitrage income of the closed-end fund. However, for a closed-end fund, its net value is announced once a week. Therefore, the transparency of information is not as good as that of an open-end fund. At the same time, for large-cap closed-end funds that have a long maturity, they may face further discount risks. . This is the characteristic of closed-end funds.

To buy a closed-end fund, you must first open a stock account and then purchase it on the secondary market.

Open-end funds are generally purchased from banks or fund management companies. Just go to the bank and open an account.

According to different standards, securities investment funds can be divided into different types:

According to whether the fund unit can be increased or redeemed, it can be divided into open-end funds and closed-end funds.

According to different organizational forms, it can be divided into corporate funds and contract funds. The fund is established by issuing fund shares and establishing an investment fund company, which is usually called a corporate fund; it is established by a fund manager, fund custodian, and investor through a fund contract, which is often called a contract fund. At present, China's securities investment funds are contract funds.

According to the difference in investment risks and returns, it can be divided into growth, income and balanced funds.

According to the different investment objects, it can be divided into stock funds, bond funds, money market funds, futures funds, etc.

Buying a fund is very simple. It can be traded on the securities lobby, that is, bought and sold on the secondary market, just like ordinary stock investment. It can also be purchased through the bank's point of sale in cooperation with the fund. Many banks have fund sales, ICBC and CCB. If you want to buy, you can ask about the related costs and interest ratios in detail; then study the internal situation and past performance of the fund management company.

The total number of open-end fund fund units is not fixed, and can be issued additionally according to development requirements, and investors can also redeem them. The redemption price is equal to the current net asset value minus handling fees.

Because investors are free to join or withdraw from such open-ended investment funds, and there is no limit on the number of investors, they are also called mutual funds. Most investment funds are open-ended.

There is a limit on the total issuance of closed-end funds. Once the issuance plan is completed, there will be no additional issuance. Investors may not redeem, but fund units can be publicly transferred on the stock exchange or over-the-counter market, and the transfer price is determined by market supply and demand.

The differences between the two are as follows:

1. The variability of fund size is different. The fund units issued by open-end funds are redeemable, and investors can purchase fund units at any time, so the size of the fund is not fixed; the size of closed-end funds is fixed.

2. The trading prices of fund units are different. The buying and selling price of fund units of open-end funds is based on the net asset value of the fund units, and there is no discount phenomenon. The price of closed-end fund units will be more affected by market supply and demand, and the price will fluctuate greatly.

3. The buying and selling channels of fund units are different. Investors of open-end funds can buy or redeem funds directly from the fund management company at any time, with lower fees. The buying and selling of closed-end funds is similar to stock trading, which can be bought and sold in the securities market, and requires handling fees and securities trading tax. Generally speaking, fees are higher than open-ended funds.

4. Different investment strategies. Open-end funds must retain a portion of the fund in order to meet investors' redemption at any time, and long-term investment will be limited. The closed-end fund is not redeemable and does not need to withdraw reserves. It can make full use of funds to make long-term investments and achieve long-term operating performance.

5. The required market conditions are different. Open-ended funds are more flexible and the scale of funds is easier to scale, so they are suitable for financial markets with a higher degree of openness, while closed-end funds are just the opposite. Smaller financial markets.