What is a characteristic of closed-end funds?

Closed-end funds have a characteristic where the number of shares issued is fixed. This means that once the fund is created and goes through its initial public offering (IPO), no additional shares can be created or redeemed by investors. Instead, shares of closed-end funds are traded on the stock exchange, similar to stocks, where they can be bought and sold among investors at market prices that may differ from the net asset value (NAV) of the underlying holdings.

The fixed number of shares allows for greater market price fluctuation based on supply and demand, as opposed to open-end funds, which continuously issue and redeem shares based on investor demand. This structure creates distinct investment strategies and trading dynamics, making it important for investors to understand how closed-end funds operate in terms of liquidity and pricing relative to their NAV.