Closed-end-funds usually have fixed-income investors attracted to them because many of these funds provide a steady stream of income. As opposed to the biannual payments provided by individual bonds, the steady stream of income provided by closed-end funds are of a monthly or quarterly basis.

Most investors are very much familiar with open-end mutual and exchange-traded funds. On this note, we are provided a nice opportunity to understand all there is to know about closed-end mutual funds by making a comparison of this type of fund to the first two familiar types earlier mentioned. One thing to note is that each of these types of funds is characterized by the pooling of investments of several investors into a single basket of securities (fund portfolio). The fact that all these types of funds share similar names, as well as a few characteristics may, at first glance, draw people into thinking they are quite similar. However, delving into how these funds operate would reveal they are really different. Discussed below are issues that will give you a better understanding of how closed-end funds work, and further help you determine whether they can be of any help to you.

• Open-End Vs. Closed End

The mutual fund company is directly responsible for open-end fund shares. These shares are bought and sold directly from the mutual fund company. A characteristic is that the fund company can constantly create new shares according to investor demand. In this regard, it is said that the number of available shares is limitless. However, the quick redemption of a considerable number of shares may affect the portfolio when the manager is burdened with the need to make trades so as to meet the demands for cash created by the redemptions. It should be noted that the costs incurred by this trading activity is shared by those investors who remain in the fund. Thus, the trading activities of investors who are redeeming their shares create a financial burden which is born by those investors who remain in the fund.

Those familiar with exchange-traded funds (ETFs) shouldn’t have difficulty understanding how closed-end funds operate. In fact, the latter operates much like the former. An initial public offering (IPO) is the means through which closed-end funds are launched. By issuing a fixed number of shares, the IPO tends to raise a fixed amount of money. The shares are invested by the fund manager, who takes charge of the IPO proceeds. The shares are invested according to the fund’s mandate. Afterwards, there is a configuration of the closed-end fund into a stock. The stock is listed on an exchange and then traded in the secondary market. A distinguishing feature is that investor activity does not affect underlying assets in the fund’s portfolio. This is due to the fact that the shares of a closed-end fund are bought and sold on the open market, just like all other shares. If you happen to be a money manager whose specialization is in small-cap stocks, high-yield bonds, emerging markets or other less liquid securities, you can take advantage of this distinguishing feature offered by closed-end funds. Note, however, that as an investor, you are required to pay a commission that serve to cater for the cost of personal trading activity.

Closed-end funds come in a wide variety of offerings, just like open-end and exchange-traded funds. There is a full range of asset allocation options provided by stock funds, bond funds and balanced funds, with both foreign and domestic markets represented. It doesn’t matter which specific fund is chosen; all closed-end funds enjoy active management. This, however, does not always happen with all open-end and exchange-traded funds. Closed-end fund managers have a huge role to play in the sense that investors do place their assets in closed-end funds, hoping that these mangers, by means of their management skills, would have returns delivered in excess of those that would be available through investing in an index product that tracked the portfolio’s benchmark index.

• Pricing and Trading

Pricing provides a clear cut distinction between open-end and closed-end funds. Open-end funds have their pricing done once per day at the close of business. In this regard, all investors making transactions in an open-end fund on any particular day pay the same price. This price is called the Net Asset Value (NAV). Closed-end funds, on the other hand, also have an NAV but the trading price is the distinguishing factor. The reason is that the trading price, which happens to be quoted throughout the day on the stock exchange, could be higher or lower than the NAV. Supply and demand are the determining factors of the actual trading price in the marketplace. Usually, ETFs have their trading price same as or close to their NAVs.

ETFs and closed-end funds are said to trade at a premium when the trading price is higher than the NAV. The occurrence of this makes investors find themselves in a rather insecure position of having to pay more for an investment that is worth less than the price paid.

The fund is, however, said to be trading at a discount if the trading price is lower than the NAV. This presents a nice opportunity for investors to actively get to work. That is, they tend to buy ETF or closed-end fund at a price lower than the actual value of the assets. The fund manager, upon realizing that close-end funds are trading at a considerable discount can undertake a number of actions to close the gap between the NAV and the trading price. He can choose to do this through the repurchasing of shares, or any other appropriate means. For instance, reports could be issued about the fund’s strategy to boost investor confidence and also have interest generated in the fund.

• Closed-End Funds’ Use of Leverage

Another unique characteristic of close-end funds is the rewarding nature of borrowings made. Though these borrowings present some amount of risk, they are very much likely to offer greater rewards when compared to open-end funds and ETFs. This leverage explains the reason why there is a higher income generation associated with close-end funds than happens in the case of open-end or exchange-traded funds.

• Why Close-End Funds Aren’t More Popular

Though closed-end funds, according to the Closed-End Fund Association, have been in existence for over 30 years (since 1893) prior to the institution of the first open-end fund in the U.S., close-end funds are greatly overshadowed by open-end funds.

The reason behind this phenomenon can be seen in the fact that closed-end funds are regarded as a fairly complex means of investment that are less liquid but more volatile than open-end funds. Furthermore, not many closed-end funds are owned by institutions or have the following of Wall Street firms. Another point is that after the initial public offering for a close-end fund has enjoyed extreme investment banking activity, there is a waning of research coverage, and subsequent languishing of shares.

• In  Conclusion

Most at times, people tend to invest in closed—end funds for the same reasons that they invest in open-end funds. Usually, there is the expectation of concrete returns on investments via the traditional approach of capital gains, price appreciation, and then income potential. However, what makes closed-end funds a worthy investment option is the availability of a wide variety of specific funds, and the fact that all funds are actively managed with the managers comfortable with the thought that they would be able to invest and seek returns of the principal at their hand without having to worry about the sudden lack of principal or sudden excesses of principal. What’s more, closed-end funds may relatively have a lower expense ratio (Cost of managing the fund to the total expenses) than that for open-ended funds.

The idea of having your investment doubled is sometimes met with skepticism. The truth, however, is that doubling your money is a realistic phenomenon. Nonetheless, it can as well be a tool that lures people into making impulsive mistakes in investment. Following the right way is therefore very vital, and five of such ways are brought to light:

• Most walked path

This is perhaps the most tested means of having your money doubled; it really requires one with a big heart considering the amount of time required in waiting. It involves investing in a non-speculative portfolio regarded as a diversified venture between blue-chip stocks and investment grade bonds. While this isn’t a means of having your money doubled in the space of a year, you are, however, assured of a safe doubled amount after a considerable period of time.

An essential tool used for determining this period of doubling is the rule of 72. With it, you can calculate how many years of waiting you have to endure before your money is doubled. All you do is to divide the expected annual rate of return into 72, and voila, you have the number of years required to double your investment. Note, this rule is used for investment that has its growth compounding on itself.

Statistically, large blue- chip stocks have, over the last hundred years, had a return of about 10% and that of investment grade bonds fetches an approximate return of 6% over the same period. From this statistics, the percentage return for a portfolio that is evenly divided between the two should be approximately 8%. Now, having this return (8%) divided into 72 fetches a portfolio that stands to double after every nine years. This could get you smiling considering that your money would be quadrupled in eighteen years.

• Contrarian Methods or by Contra Funds

There are times when some investors tend to pull out, causing the stock prices of companies to go through slumps. Taking a risk by boldly deciding to make a purchase in such circumstance can be very rewarding after all. Getting in while everyone is getting out does not mean you are making purchase of garbage. On the contrary, the point behind the whole strategy is that good investments sometimes gets oversold, and this affords brave investors an opportunity to enjoy fat returns on their money.

Together with the book value for a company, the price-to-earnings ratio can be used to gauge when a stock may be oversold. Both the broad markets and specific industries recognize these two measures as well established historical norms. Companies that unfortunately fall below the averages provided by these measures tend to create an opportunity for the smart ones to have their money doubled. This method has become popular recently that there are mutual funds from big corporations which have specific mutual funds to invest in stocks or bonds of companies in distress.

• Adopting the Safe Approach

Bonds provide a very secure way for those investors who fear facing the risk posed by the quicker ways of doubling their money. Opting for this approach does not mean seeing yourself out of the “double your money” realm. For instance, zero –coupon bonds will surely keep your dream high.

Zero-coupon bonds are very comprehensive and should not sound an alarm of threat in your ears. They afford you the opportunity to buy a bond at a discount to its eventual maturity amount, as against making purchase of a bond that rewards you with regular interest payment. That is to say instead of, for instance, paying $2000 for a $2000 bond that pays 5 % per year, an investor might choose to buy the same $2000 for $1000. Its value slowly climbs up as it moves closer and closer to maturity until the bondholder is eventually repaid the face amount.

Zero-coupon bonds offer their holders the benefit of being free from reinvestment risk. Standard coupon bonds, on the other hand, present an unpleasant challenge of having to reinvest the interest payments upon receipt. Zero-coupon bonds grow toward maturity and you are free from having to invest smaller interest rate payments or the risk of falling interest rates.

• Speculation in penny stocks and options.

While some are cool with slow and steady approaches, others choose to go for the riskier ventures, and of course, this can chalk very huge returns. These risk-bearing investors have the following to utilize to their advantage: options, margin or penny stock.

Speculating on any company’s stock can be done via stock options like simple puts and calls. Generally, options have the potential to boost the performance of their portfolio. The fact that each stock option most likely stands for 100 shares of stock means that a company’s price might only need a little percentage increase so as to make an investor hit one out of the park. Great caution must however be taken because in as much as options can create wealth in just a short while, so can they also take away the wealth in like manner.

In case you don’t have the time to learn the ins and outs of options but want to have your faith leveraged about a particular stock, there is an option for you: you can choose to buy on margin or sell a stock short. Either way, you are able to borrow money from a brokerage house to purchase or sell more shares than you actually have. This in turn can substantially raise your potential profits. Remember, your available cash can be backed into a corner by margin calls, and infinite losses can as well be generated through short selling. Be therefore informed and prepared for these risk as a brave-hearted investor.

Now, a quick look at extreme bargain hunting! This can fetch you quick and huge returns on small amount of investment; your pennies could be turned into dollars in a short while.   Penny stocks have the potential to double your money in just a single trading day. What needs remembering is the fact that the price at which a company sells reflects the fact that there are other investors who don’t see any value in paying more.

• Opting for the Best Way

It so happens that the matching contribution you receive in your employer’s retirement plan is the surest way to get your money doubled. The money that goes into your 401(k) or any other employer-sponsored retirement plan comes right off the top of what is reported to the IRS by your employer. That is to say, for instance, for every 75 cents an American forgoes out of his/her paycheck, there is an amount of $1.5 or more added to his/her retirement nest egg. Take note, the government is also involved in the “matching” deal. It “matches” some portion of the retirement contributions of taxpayer’s earning less than a certain amount. You have your tax bill reduced by 10 to 50% of your contributions to a variety of retirement accounts via the Credit for Qualified Retiremement Savings Contribution.

• A Point Worth Noting

Be reminded of the fact that there are numerous investment scams out there. Of course, there are other means of doubling your money apart from the ones enumerated above. You must, however, be extra vigilant of these scams that abound so much out there. There is nothing wrong with being suspicious when you are promised results. It doesn’t matter whoever you are dealing with – it could be your broker or a close relative; just make sure you aren’t a victim being used to double other people’s money.