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Chapter 2. Direct versus Indirect Investing > Closed-End Investment Companies

Closed-End Investment Companies

Closed-end investment companies are similar to mutual funds in that they offer investors a managed portfolio of securities in which to invest. Unlike mutual funds, however, investors buy shares of closed-end funds just as they do any other security because closed-ends trade on exchanges. Therefore, they buy and sell these shares through their brokerage accounts, paying regular brokerage commissions.

Unlike open-end funds, closed-end funds have no redemption privileges. You can't sell the shares back to the company as you can with mutual funds. Instead, you must sell them to another investor, exactly as you would your shares of Cisco or IBM. This means that each closed-end fund has a current market price that reflects what investors are willing to pay for the shares—in short, a price determined by the supply and demand for the shares.


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