what are CEF's Closed End Funds??
are these like mutual funds or similar to ETF's, are they traded similarly to stocks? what are the risks involved in these?
i found a couple that pays 20% annually in dividends, are these safe?
- RapaLv 61 decade agoFavorite Answer
A fund with a fixed number of shares outstanding, and one which does not redeem shares the way a typical mutual fund does. Closed-end funds behave more like stock than open-end funds: closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange, and they are not obligated to issue new shares or redeem outstanding shares as open-end funds are. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value ("at a discount") or above it ("at a premium"). also called closed-end investment company or publicly-traded fund.
Yes they are traded in the stock exchanges like the shares.
The risk involved will be less when compared to the stocks because of the Diversity of the portfolio and the professional management of the fund .remember that the fund managers are paid a hefty sum to manage those portfolios...That is one of the highly paid jobs these days...and nobody pays for nothin...
although there will be standard risk factors like the market risk and no assurance of the returns or the capital..but its again common to all the investors...
theres is absolutely no problem with the funds paying 20% returns...a proper managed active fund can getr u returns above that also..
so u need not worry much...i hope i answered your question
- Anonymous1 decade ago
They are more like mutual funds but they are ETFs. They are traded like stocks. The risks are similar to those of open ended mutual funds with one exception actually some might say two exceptions. One is that many are leveraged. That is they use preferred stock to leverage the returns of the common stock. The second is that since they are not open ended the porfolio manager some whould say is not accountable for poor performance. There are many of these available to the investor. And yes some do currently pay above 20%. Safe? Probably not.
One that I know of RHY has lost 58% of its value so far this year because it cut its dividend form 0.14 cents a month to 0.11 cents. It sells at a premium to net assets and has an extremely high expense ratio of 2.83%. It holds junk bonds, which in themselves are very risky, especially as the economy begins to go into a recession. Not only that but the fund has no track record having been launched in Jan 2006.
Other funds have a high distribution rate due to year end capital gains. These are perhaps a better investment vehicle, but because the distribution is a capital gain distribution you can not necessarily expect it continually.
You need to evaluate these funds as you would any mutual fund. Look at the performance history, the expense ratio, the type of securities it deals in and how it might fit in with your investment objectives.
Here is a link to a site where you can find out information on CEFs.