Closed-end funds are the type of mutual funds that come with a lock-in period. Moreover, you can only subscribe to these funds when they issue their initial shares through an NFO (New Fund Offering). You can redeem your units only once the lock-in period is over. Some closed-end funds, however, convert into open-ended funds once the lock-in period ends.
Benefits of Closed-End Mutual Funds
The potential for active fund management is a major advantage for investors in closed-end mutual funds. It allows fund managers to make tactical but informed decisions with no challenges due to the constant cash flow of the capital. Furthermore, this closed structure can result in unique opportunities in the market since the fund’s market price may stray away from its Net Asset Value (NAV). This divergence creates opportunities for investors seeking value through their trading platform.