7954 / What is a closed-end fund? How are shareholders in a closed-end fund taxed?

A closed-end fund holds a portfolio of investment assets, but does not ordinarily redeem shares at net asset value or sell new shares. Shares of the fund itself are actively traded on the secondary market.

Although a closed-end fund is not actually a mutual fund, if the fund qualifies and makes the necessary election to be taxed as a regulated investment company (RIC), its shareholders will be taxed like shareholders of a mutual fund. See Q 7938 through Q 7951 for details. If, on the other hand, the closed-end fund is established as a regular corporation, its shareholders will be taxed accordingly (see Q 7501 to Q 7540).

Because closed-end fund shares are traded in the open market or on an exchange and are not redeemed by the company, capital gain or loss on sale is based on the sale price and not on redemption price.