How do closed end funds differ from exchange traded funds (ETFs)?
While both closed end funds and ETFs are investment companies whose shares trade in the open market, they differ in how their shares are issued and redeemed. Closed end funds issue a fixed number of shares in an IPO, which sometimes trade at a premium or discount to NAV in the secondary market. ETFs have a unique creation and redemption process that allows ETF shares outstanding to increase or decrease and prevents a significant premium or discount to NAV. Closed end funds and ETFs also differ in the types of products available. For example, at present most ETFs are based on index portfolios, whereas Closed end funds are usually based on actively managed portfolios. Also, at present no ETFs are available based on municipal securities.
