Like a traditional mutual fund, a CEF invests in a portfolio of securities and is managed, typically, by an investment management firm. But unlike mutual funds, CEFs are closed in the sense that capital does not regularly flow into them when investors buy shares, and it does not flow out when investors sell shares. After the initial public offering, shares are not traded directly with the sponsoring fund family, as is the case with open-end mutual funds.
Instead, shares are traded on an exchange, typically, and other market participants act as the corresponding buyers or sellers. The fund itself does not issue or redeem shares daily.
Like stocks, CEFs hold an initial public offering at their launch. With the capital raised during this IPO, the portfolio managers then buy securities befitting the fund's investment strategy.
Capital Inflows and Outflows >>