I am currently reading up on how open-ended and closed-ended funds work and in the information i am reading it says:
"liquidity is very poor. The time to buy closed funds is immediately after they are issued. Often the share price drops below the net asset value, thus selling at a discount. A minimum investment of as much as $5000 may apply, and unlike the more common open funds discussed below, there is typically a five-year commitment. "
What does it mean by 5-year comitment and why isnt it as liquid since, if they trade on an exchange dont u just sell them to a buyer..Ahh but i just realized...maybe they're arent any buyers that day.
But what is this 5-year comittment thing mean? Is an investor into a closed-fund stuck with those shares for 5-years before they can sell them?
2007-01-26 01:01:57 · 5 answers · asked by rob m 1 in Business & Finance ➔ Investing
Completely wrong info though discounts do occcur as the market discounts tax liability which it can not do in mutual funds. liquidity same as any stock as that is what a closed end fund is. Just another example of why reading on the market slows/harms your investment progress. No 5 yrs - ignore everything there. ADX PEO GAM - great close ends you should buy NOW/
2007-01-26 02:01:32 · answer #1 · answered by vegas_iwish 5 · 0⤊ 1⤋
I hate to have to tell you this, but that is a bunch of crap. There is no commitment at all. You can day trade closed end funds if you wish. They trade exactly like stocks. You can buy as little as one share or as many as you like.
There was one correct point that you mentioned. They do many times trade at a discount to net assets, sometimes a significant discount. It is like buy stocks on sale.
They have one real big advantage over open end mutual funds. You can buy and sell them at any time rather than after the market closes.
I am providing you two links to two good sites where you can learn more about closed end funds.
http://www.etfconnect.com/
http://www.closed-endfunds.com/FundSelector/AdvancedSearch.fs
One more point. Absolutely never, never buy a closed end fund at the ipo. That is an excellent way to get the shaft. The reason being that there is about a 7 1/2% mark up on net assets at the ipo and additionally the fund will likely after about 3 months trade at a 10 to 15% discount from net assets.
2007-01-26 12:35:35 · answer #2 · answered by Anonymous · 0⤊ 0⤋
As far as I know there are no long-term commitments to closed-end funds. You can get liquidity in the markets by trading on an exchange. The valuation of a closed-end fund is set by supply/demand for those funds on the exchange it trades on. In other words when you sell a closed-end fund, you are transacting with another market participant who wants to buy the fund, and not with the fund itself. Liquidity on some of them can be poor as a result. Hence, the valuation of the closed-end fund may be at a premium or discount to the actual underlying assets in the fund. Many believe it is better to buy funds post-IPO especially since the assets trade down because of initial fees and sales charges which tend to get reflected. There are various websites on closed-end funds that track whether a particular fund is trading at a discount.
An open-ended fund is issued by a mutual fund company. They guarantee your ability to liquidate each day assuming you put in a timely order. The liquidation price is always equal to the underlying value of the fund. You can think of it as equivalent to a closed-end fund that always trades at its net asset value. Because of this guaranteed liquidity, most open-ended funds retain a cash balance of 5% or so. Hence, some investors believe that it's a relatively inefficient vehicle vs. a closed-end fund which can effectively invest 100% of its assets because it does not redeem shares.
2007-01-26 09:23:20 · answer #3 · answered by gls_merch 5 · 0⤊ 1⤋
Closed End funds trade on the secondary market (the stock market) just like a stock. Liquidity is determined just like any other security that trades....no such thing as a 5 year commitment...don't know what that nonsense is....sounds like a facacta private placement deal run by a shady firm..
2007-01-26 13:01:57 · answer #4 · answered by dashel_gabelli 3 · 0⤊ 0⤋
The closed ended funds are broght and sold by the promoters. So they stand ready to buy your shares when you want to sell them. About the five year holding period which might be prerogatives to some funds.
2007-01-26 10:29:29 · answer #5 · answered by Mathew C 5 · 0⤊ 1⤋