Closed ended funds and investment trusts

Closed ended funds are as you might expect to be contrasted with open ended funds. If you've read the article 'funds and investing in funds' then you will know what those are. The closed ended definition just means that there is a set number of shares in the funds, and they do not go up and down as they would with an open ended fund: to this extent they are closed, hence the name.

So, what defines what each of the shares in the closed ended fund is worth? As you might expect, it is the market itself that defines the value of each share. As you may have anticipated, it therefore may be the case that the total value of the shares that constitute the closed ended fund in totality could be out of synch with the actual assets value. This leads to the terms discount when the shares are worth less than the assets, or a premium on the flip side.

The shares in investment trusts are a traded product like any other share. Being comprised of shares, there will be dividend that will accrue over time on the holdings of the investment trust or closed-ended funds (the former being a subset of the latter, i.e. an investment trust is a type of closed-ended fund, though the word 'trust' is not particularly helpful here).

So what happens to the dividends or indeed any other potential incomings to the fund? The answer is that it depends: there are two options, it is either distributed to those that have shares in the fund - that's the investors - or it could simply be re-invested into the fund.

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Closed ended funds and investment trusts

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