Closed-end fund characteristics

There is a long closed period, the number of issues is fixed, and the holders cannot redeem during the closed period and can only buy and sell in the secondary market. Closed-end funds do not have to worry about redemption during the duration.

Holders can't ask the fund company to pay back the money early. Therefore, the fund company has a lot of autonomy over the money, and can even play the "benefit transfer" trick. Of course, there are regular fund companies, fund managers, they manage the closed-end fund returns will not necessarily be worse than open-end funds.

Another feature of closed-end funds is that they have a duration. In China, this period cannot be less than five years, and the period for a typical closed-end fund is fifteen years.

There are three ways to deal with a closed-end fund after it expires: one is to liquidate it, i.e., return it to investors after deducting a certain amount of fees from the net value of the fund; the second is to turn it into an open-end fund, which is often referred to as a "closure to open"; and the third is to extend the expiration date, which is rarely used.

Expanded Information

Development of Closed-End Funds

Closed-end funds belong to trust funds, which are investment funds whose size is determined before issuance, and which are fixed for a specified period of time after the issuance is completed, and which are traded on the securities market. Since the early 1990s, China has established 54 closed-end funds.

Because closed-end funds are traded on the stock exchange in a competitive manner, the trading price is affected by market supply and demand and does not necessarily reflect the net asset value of the fund, i.e., relative to its net asset value, the trading price of closed-end funds has a premium, discount phenomenon. The practice of closed-end funds in foreign countries shows that the trading price often exists first premium and then discount price fluctuation law.

From the operation of China's closed-end funds, no matter how the fundamentals change, China's closed-end fund trading price trend has not been able to get out of the price fluctuation of the first premium, then discount.

Currently, China's closed-end funds are running in the "discount" stage, and since 2002 China's closed-end fund discount rate (net value minus the market price and then divided by the net value) has shown a gradual increase in the trend of some closed-end funds for a long time, the discount rate is as high as 30% or more, significantly higher than the closed-end fund level of discount in foreign countries. The discount level of some closed-end funds is as high as 30%, which is obviously higher than that of foreign closed-end funds.

According to the provisions of the Administrative Measures for Securities Investment Funds, the income distribution of closed-end funds shall not be less than once a year, and the annual income distribution ratio of closed-end funds shall not be less than 90% of the annual realized income of the fund, and the closed-end funds generally adopt the cash method of dividend distribution.

Reference source Baidu Encyclopedia - Closed-end Fund