Question

1. List and explain the differences between a closed-end investment company and a mutual fund and give the sources of return from an investment in a closed-end investment company.

2. Could a closed-end investment company sell for a discount from net asset value but a mutual fund cannot sell for a discount? To answer this question you should differentiate a real estate investment trust (REIT) from a firm involved in building, developing, and owning properties.

Answer 1

1a) Difference between Closed end Investment and Mutual Fund

Ans :

1. Capital Structure : for closed‑end investment company has a fixed number of shares but  mutual fund's number of shares continuously changes.
2. NAV :  Mutual fund by buying shares at the net asset value (NAV) the same value has been changed every day, but closed-end funds do not trade at their NAVs.
3. Investmet : for Mutual Fund Shareholders receive monthly and annual statements showing purchases and sales of shares, interest income, dividends, capital gains and losses, and other relevant data that they should retain for tax purposes. In addition, when investing in mutual funds, investors also should keep track of the NAV prices of shares purchased and sold, but newly issued closed-end fund, the portfolio of investments has not yet been constituted, so investors do not know what the investment assets are and, in the case of bond funds, the yields on those investments

1b) Sources of return from an investment in a closed-end investment company.

Ans :

A closed-end investment company, Source Capital seeks maximum total return from capital appreciation and investment income to the extent consistent with protection of invested capital.

2a) Could a closed-end investment company sell for a discount from net asset value but a mutual fund cannot sell for a discount?

Ans :

Closed-end investment companies are bought and sold in the secondary markets through the brokers, so the prices of the shares are established by supply and demand and may sell for a discount from net asset value. (They may also sell for a premium above their net asset value.),

but the Mutual Funds Investors acquire shares of mutual funds for their NPV (net asset value) plus any applicable load charges. The shares are redeemed by the fund at the shares NPV minus any applicable exit fees so its not sell with discount.

2b) differentiate a real estate investment trust (REIT) from a firm involved in building, developing, and owning properties.

Ans : A real estate investment trust (REIT) is an specialist in real estate investments. These investments may specifically deal with mortgage loans or improvement loans, or the trust may own property and lease it to firms needing the space.
Firms is dealing with construction business, that is build, and develop properties actively participate in the construction process. REITs may buy existing buildings. This is also the same type of closed‑end investment company, their earnings are not taxed at the corporate level but are passed through to stockholders. There is an active secondary market in the shares of REITs, and like the shares of a closed-end investment company, the stock of a REIT may sell for a discount or premium over its net asset value.