Mutual Funds

Closed-Ended Mutual Funds

What are some important steps to take when considering investing in a closed-ended fund?

Before you invest in a closed-ended fund, you should consider what sector or type of closed-ended fund matches your investing goals. You may also see how the fund compares with similar funds by looking online at websites such as Lipper and Morningstar, as well as industry reports from popular news organizations such as U.S. News & World Report and Money. The next step is to check the size of the discount or premium the fund is currently trading against its net asset value. If the fund is trading at a discount (as opposed to a premium), you stand a better chance of having good performance after you invest. You may see the fund’s average one-year discount since its inception, and compare it to today’s current discount. Even though it has been stated many times that one should never base a decision to invest solely upon a fund’s past performance, it may indicate how well the fund may do in the future. It is a good idea also to review a potential fund’s historical performance, to see how consistent it is, how it compares to other similar funds, and how it compares to various market indexes. According to experts at The Wall Street Journal, it is important to note the debt of a closed-ended fund, since more debt means the fund may be taking out loans to leverage its portfolio’s investments, inherently making the fund riskier.


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