A "Close-end" mutual fund is also created by gathering money from investors. However, unlike an Open-end fund, Closed-end funds are traded freely on an exchange. These funds tend to behave as a stock would. After the fund’s inception, if an investor would like to purchase shares of the Closed-end fund they must find a seller to buy from, and if an investor chooses to sell their shares in the fund they must find a buyer on the other side to purchase the shares from them. This means that the total size of the Closed-end fund does not change with investor activity. Shares of closed-end funds circulate on stock exchanges and in the over-the-counter market. Thus, investor willing to sell or buy shares of closed-end fund has to submit an application to the broker similar to the procedure if he had purchased or sold, for example, Microsoft shares. In closed-end funds, the investor participates in a portfolio that invests in many securities, and this helps to spread market risk. If any one security performs poorly, it shouldn't have a severe impact on the overall investment. In addition such funds are more convenient as far as buying and selling is concerned and also offer increased liquidity.
The main difference between closed-end mutual fund and open-end fund lies in the fact that value of closed-end fund share is determined not by current net asset value, but the ratio of demand-supply for its shares in the stock market.
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