FINRA Investor Alert: "Closed-End Fund Distributions: Where Is the Money Coming From?"
FINRA has issued a new Investor Alert intended to explain what closed-end funds are, how they differ from traditional mutual funds, what a distribution rate is and what to ask before investing. FINRA's new investor alert (linked below) explains that closed-end funds are similar to mutual funds, but unlike mutual funds (which continuously sell newly issued shares and redeem outstanding shares), most closed-end funds offer a fixed number of shares in an initial public offering which are then traded on an exchange.
This investor alert urges investors to ask the following six questions before investing in a closed-end fund:
- Does a closed-end fund fit into my investment objectives?
- What is the closed-end fund's investment strategy?
- How much of what I pay per share in an IPO will actually be invested?
- What are the tax implications?
- How is the distribution rate set?
- Are the shares trading at a premium or discount to NAV?
See: Closed-End Fund Distributions: Where Is the Money Coming From?