Closed-end fund refers to a securities investment fund that has determined the total amount of issuance and the issuance period when it is established, and fixed the total amount of issuance within the prescribed period after the issuance is completed. The holder can't redeem it during the closed period and can only buy and sell it in the secondary market.

The profit distribution of closed-end funds can only be carried out in the form of cash dividends, but not in the form of dividend reinvestment. At the same time, according to the Measures for the Operation and Management of Public Offering of Securities Investment Funds, the annual income distribution ratio of closed-end funds shall not be less than 90% of the annual distributable profits of the funds; The income distribution of closed-end funds shall not be less than once a year; After the distribution of fund income, the net value of fund shares shall not be lower than the face value.

It should be noted that fund dividends must meet the following conditions:

1. The fund can only be distributed after the current year's income makes up for the previous year's losses.

2. After the distribution of fund income, the unit net value cannot be lower than the face value.

3. If the fund investment has a net loss in the current period, it cannot be distributed.

Why should the fund pay dividends?

The first is the rigid requirements in the regulations. According to the regulations, closed-end funds pay dividends at least once a year, which is a hard requirement and has to be implemented. Of course, dividends must have preconditions. For example, the loss of the previous year, the profit of that year must first make up for the loss of the previous year, and the rest can be used for dividends.

But for open-end funds, there is no rigid requirement to pay dividends more than once a year, so open-end funds that do not pay dividends for several years in a row also exist.

Secondly, in order to cash in profits for investors. Fund dividends are a way to cash in profits, just like buying stocks ourselves. When the stock rises and makes a profit, we can only cash in the profit by selling it. If you don't sell it, maybe it will fall back one day and the profit will be gone.

For open-end funds, because investors can redeem the fund at any time, if the fund makes money without paying dividends, investors may also redeem the fund to cash in the proceeds, which is safe. Instead of letting investors redeem their own funds, it is better to return the money to investors in the form of dividends, which may retain some investors.