A Guide on Closed-End Funds

Updated on Monday 26th November 2018

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A Guide on Closed-End Funds Image
Investment funds that can be registered in any jurisdiction can be set up as open-ended or closed-ended vehicles. Investors interested in how to start a fund as a closed-ended structure must know that the main characteristic of this category of fund refers to the fact that the company may issue and sell a limited number of shares in one initial public offering (IPO). 

The main characteristics of a closed-ended fund 

A closed-ended fund is usually set up as an investment company that can list its shares on a local stock exchange market. Once the IPO has been made, the shares of the company will be traded on the local market. It is important to know that the value of the shares sold on the exchange market will fluctuate, depending on the supply and demand registered in that particular market. 

Those interested in setting up an investment fund as a closed-ended vehicle must know that the legal entity must be registered with the relevant authorities, in accordance with the legislation applicable in that respective jurisdiction. 

A closed-ended fund can perform investment strategies related to the following assets:

•    securities;
•    bonds (corporate bonds, municipal bonds);
•    stocks (common stocks or preferred stocks). 

Distributions in a closed-ended fund 

Businessmen who have invested a specific sum of money in a closed-ended fund will be allowed to receive distributions, which can vary on their overall value from one period to another. 

In a closed-ended fund, investors can receive distributions on a monthly or quartery basis, which are transferred from the following types of sources: 

•    income from dividends;
•    income from interest;
•    income obtained from capital gains;
•    return of capital. 

However, when paying the distributions, the first aspect that should be completed refers to the operating expenses of the fund. Such expenses are paid from the fund’s assets prior to starting paying any distributions.  

Investors interested in the procedure of setting up an investment fund  are advised to analyze the types of closed-ended funds which can be registered in a jurisdiction and to establish an investment strategy in this sense. 

Businessmen may find out more information on the characteristics of the closed-ended fund from our partners. Please contact our team of affiliates for more details on this subject.