Close-End Funds

Close-End Funds Explained

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Question

Close-end funds:

Answers

Explanations

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A. B. C. D.

D

Close-end funds are investment funds that issue a fixed number of shares to investors through an initial public offering (IPO). After the IPO, the shares trade on an exchange like stocks. The investment portfolio of a close-end fund is managed by a professional investment manager or a team of managers employed by a separate management entity.

Regarding the answer options, here is an explanation:

A. Are not redeemable: Close-end funds are generally not redeemable, which means that investors cannot redeem their shares back to the fund at the net asset value (NAV) of the fund. Instead, investors must sell their shares on a stock exchange, which means that the price they receive may be higher or lower than the NAV. This is because the price of the shares is determined by market demand and supply, not the NAV of the fund.

B. The investment portfolios generally are managed by separate entities: As mentioned above, the investment portfolios of close-end funds are generally managed by separate entities, such as an investment advisor or management company. This is different from mutual funds, where the investment portfolio is typically managed by the mutual fund company itself.

C. Are permitted to invest in a greater amount of "illiquid" securities than mutual funds: Close-end funds are generally permitted to invest in a greater amount of "illiquid" securities than mutual funds. This is because close-end funds issue a fixed number of shares, and the shares trade on an exchange. Therefore, the fund does not have to worry about investors redeeming their shares, which means that the fund can invest in securities that may take longer to sell or have limited trading volume.

D. All of these: Therefore, the correct answer is D. All of these. Close-end funds are generally not redeemable, their investment portfolios are managed by separate entities, and they are permitted to invest in a greater amount of "illiquid" securities than mutual funds.