Do you know the differences between open-end and closed-end funds?
This week, Craig Siminski, of CMS Retirement Income Planning, shares an article comparing the two:
Most mutual funds are open ended, which means the investment company can issue and redeem fund shares to meet investor demand. By contrast, closed-end funds issue a fixed number of shares in an initial public offering (IPO), and thereafter shares are traded on an exchange.
Both open-end and closed-end funds may hold stocks, bonds, and other types of underlying investments. Unlike open-end funds, closed-end funds do not have to maintain cash reserves or sell securities to meet redemptions, so fund managers can invest in less-liquid securities. They can also use riskier leverage strategies, which can magnify a fund’s positive or negative returns and make them more volatile.
Closed-end funds are often designed to generate a steady income stream — called the distribution rate — that tends to be higher than what might be offered by an open-end fund with similar securities.
However, closed-end funds may be better suited for…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 22 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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