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Morningstar Education
Investment Trusts Solutions
What Is A Closed-end Fund?
Slide 2: What Is A Closed-end Fund?

A Closed-end fund, or CEF, is a collective investment scheme. However, it differs from an Open-end unit trust or investment company in that it has fixed capital and its shares are traded on an exchange.

Slide 3: What Is A Closed-end Fund?
Because the capital is fixed, it means the investment manager doesn't have to deal with subscriptions or redemptions. This can be particularly helpful in volatile markets, when investors are notoriously good at selling at the bottom and buying at the top.
Slide 4: What Is A Closed-end Fund?

There are several different names used for closed-end funds but each has a distinct meaning.

 

Investment Trust – this is a trust that meets the requirement of the Income & Corporation Taxes Act (ICTA) 2010 -- formerly Section 842 of the Income & Corporation Taxes Act 1988.  Not all CEFs can or indeed choose to meet this requirement.

Slide 5: What Is A Closed-end Fund?

Investment Company – this term became more common as the number of companies increased, yet many were choosing not to seek Investment Trust status or indeed weren't able to. For example, direct property funds cannot be an investment trust under the ICTA.

 

The problem with this term is that OEICs are also a type of investment company, an Open-Ended Investment Company, so it can be a little confusing.

Slide 6: What Is A Closed-end Fund?

Closed-end Fund – this is the most accurate term which covers all funds with a fixed capital structure.

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