3 Reasons to Consider a Closed-End Fund

Investing in closed-end funds can provide you with a number of unique benefits as an investor. A closed-end fund is one that limits the number of investors that are allowed into the fund. Here are a few reasons that you may want to consider a closed-end fund for your investments.

1. Investors are Priority

When investing in a closed-end fund, you can rest assured that the investors are the priority for the mutual fund managers. Many mutual funds are basically something that investment managers can sell to their clients. They try to get as many people involved as possible and do not place as much emphasis on the performance of the fund itself. When involved with a closed-end fund, at some point it will stop taking the investors. Therefore the emphasis will be solely on the existing investors and not attracting new clients. As an investor, you want to know that you are a top priority for your fund manager. There we much more likely to put all of their resources into building the value of the fund instead of trying to bring in new clients. This will provide you with a greater return on your investment and a much more enjoyable experience for you as an investor.

2. Flexibility

Another advantage of investing in a closed-end fund is that it provides you with flexibility. Mutual funds can get too big for their own good. When this happens, they tend to be very rigid and cannot make movements as well they once did. When a mutual fund that has billions of dollars worth of assets wants to make a purchase of the security, it will inevitably be a much larger purchase than anything else going on the market. Therefore, other investors may be tipped off that something is happening and try to buy the same thing. When this happens, the prices of the securities will rise and potential profits will be lost for the mutual fund. Therefore, the movements of mutual fund will be much less efficient and bring in lesser return for the investors.

3. Growth

Investing in smaller mutual funds with fewer clients is a great way to achieve growth in your portfolio. The smaller mutual funds tend to grow their clients portfolios at a faster rate than the larger ones. Larger mutual funds can only do so much to grow their assets. According to the law of diminishing marginal returns, doing the same things will not always at the same results. Therefore, once a mutual fund gets to a certain point, it will not perform like it once did. Limiting the amount of investors to get involved keeps the growth of the portfolio as the main focus. The mutual fund will be small enough to make quick moves when necessary and grow the portfolio at the same rate that it always has. As an investor, this is something that you want to see.

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