There are two kinds of funds: open-end funds and closed-end funds. Closed-end funds generally have a closed period, which is generally suitable for buying idle money that has not been used for a long time. Can closed-end funds be redeemed in advance? Is a closed three-year fund worth buying? So today, Bian Xiao is here to sort out what is called a closed-end fund. Let's have a look!
What is a closed-end fund?
Closed-end fund means that after the end of the raising period, fund companies no longer sell fund shares to external investors, nor accept fund share redemption, but trade in the secondary market. Its main feature is that the fund share is limited, and investors cannot buy and sell freely, so they must trade through the exchange or OTC system.
What are the advantages and disadvantages of closed-end funds?
Advantages of closed-end funds:
Investment stability: Because the assets held by closed-end funds are fixed in scale and are not affected by investors' buying and selling behavior, it is easier for fund managers to formulate long-term investment strategies, which is more conducive to stable long-term investment.
Advantageous asset allocation: Closed-end funds only buy assets during the raising period, so fund managers have more time to screen and allocate assets, which improves the flexibility and opportunity of asset allocation.
High-yield potential: closed-end fund investment strategy is relatively independent, which may make it easier to find and invest in scarce high-yield investment opportunities.
Transaction transparency: Closed-end funds are traded in the exchange or OTC system, which has the advantages of transparent transaction price and low transaction cost.
Disadvantages of closed-end funds:
Poor liquidity: closed-end funds can't redeem their shares during the period, and investors can't sell their fund shares at any time, which will lead to a long lock-up period and poor liquidity.
Market price fluctuation: when closed-end funds are traded on the exchange, their prices will also be affected by the relationship between market supply and demand, and there may be a phenomenon of premium or discount. When selling a fund, investors are not sure whether they can get the expected net value of the fund.
High risk: the investment strategy and investment field of closed-end funds are relatively independent, which may involve high-risk investment projects or industries. Investors need to have a certain understanding and tolerance of the risks of the fund.
High fund management fee: the fund management fee rate of closed-end funds is relatively high, because the fund manager needs to manage and trade the fund assets during the closed period of the fund, and the management fee will have a certain impact on the investment performance.
Can closed-end funds be redeemed in advance?
Closed-end funds cannot be redeemed in advance. Generally, closed-end funds have a time limit. For example, the fund details will indicate that the closure period is half a year, one year, three years, two years and so on. Only when it expires can they be withdrawn. However, it should be noted that some closed-end funds will be listed and traded, so they can be sold in the secondary market.
Closed-end funds generally do not have a redemption page when they expire, that is, there is no way to redeem them. Therefore, when buying closed-end funds, it is necessary to plan the funds well, and it is best to keep the unused funds for as long as possible.
If you need this money in the short term, then you can consider open-end funds, that is, funds with no term. It usually arrives in a few days, and can be redeemed a few days in advance when necessary.
Is a closed three-year fund worth buying?
Whether a closed-end three-year fund is worth buying depends on the situation. First of all, three years is a long time. Everyone should make a good capital plan before buying. It is better to buy money that will not be used for three years, or prepare a reserve fund before buying, so that even in case of emergency, there is a reserve fund to use.
In addition, it should be noted that funds are managed by fund managers, so when choosing, you must choose a good fund manager, and you can give priority to fund managers who have worked for a long time. It is better to have more than three years of experience, because it is more experienced than the new fund manager, and the other is to look at the business return rate and the performance of managing the fund.
Then the investment direction should also be analyzed, because the rise and fall of the fund mainly depends on the direction of the fund investment target. Only when the investment direction is promising will there be the possibility of rising. If the investment direction has no development prospects, it is generally not worth buying, because the fund may fall.
When buying a closed-end three-year fund, you should think carefully, because the fund has a long term and poor liquidity. Nobody knows what will happen in the future. Even if you see that the fund is falling, if the fund has not expired, you can't redeem it. You can only wait until the fund is listed and traded or opened regularly.
Will closed-end funds be liquidated?
Closed-end funds will be liquidated. Generally speaking, closed-end funds may be liquidated if their duration is not extended after expiration. Of course, it is also possible to change from closed-end funds to open-end funds.
When the closed-end fund is liquidated, the fund company will return the funds to the investors according to the fund shares held by the investors and the net value of the funds after deducting certain expenses. If the closed-end fund is changed from closed-end fund to open-end fund without liquidation after expiration, then investors can purchase or redeem it normally.
Liquidation of closed-end funds after expiration is relatively unfavorable to investors. Because the liquidation of closed-end funds will aggravate the "marginalized" management, that is to say, the fund manager has already seen the future of the fund when he started to take over a fund, so the significance of cautious management and careless management is not great, and the final result is the same anyway. And if the fund manager does not manage carefully, it is a risk for investors.