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Closed-end mutual funds - what are they and should you invest in them?

Closed-end mutual funds - what are they?

The development of the brokerage infrastructure after the strongest post-COVID crisis in the market led to the development of investment and the study of financial instruments. Closed-end mutual funds (ZPIF) are considered one of the most interesting and profitable ones. Is it worth investing in them and what risks should be kept in mind?

Closed-end mutual funds are a financial market instrument focused on the organization and implementation of projects involving investments on a long-term basis through a licensed management company. With a closed version of the fund, the property belongs to the owners of the shares on the basis of common shared ownership.

Investing in mutual funds is suitable for those investors who want to get a profitable portfolio, collected by a professional management company or financial intermediary.

The difference between closed mutual funds and other types of funds

Unlike open-ended and exchange-traded funds, a feature of closed mutual funds is investing in risky, but highly liquid assets. Among the features of the closed-end investment fund, it is also necessary to highlight:

During the implementation of the project work of the fund, shareholders receive dividends or intermediate income. Before closing, the management company sells the existing assets and makes settlements with the owners of the shares.

Entry of an unqualified investor into closed-end mutual funds

Despite the complexity and high entry threshold, you can try to enter a closed-end fund for an unqualified investor:

The assets available to an unqualified investor are concentrated around the following areas:

Principles for choosing a unit of a closed-end mutual fund

Information about mutual funds is in the official registers of the country, which indicates that the fund has been registered and operates in the legislative field.

When choosing a fund, you need to pay attention to the parameters:

If an investor works independently and acquires a share through intermediaries, then first of all he should be interested in the license of the management company and broker, and secondly, customer reviews and ratings in the financial services market.

Sale and redemption of a share

You can earn on shares, just like on securities. Standard speculative scheme: buying a share when it gets cheaper and selling when it gets more expensive. Also, the shareholder has the opportunity to redeem his share and receive monetary compensation from the management company or part of the fund's property. Investments in closed-end mutual funds are justified only if the investor understands the principle of the instrument and knows how to use it correctly.

Risks of investing in closed mutual funds

By investing in mutual funds, no one can guarantee the investor profitability and return of funds in case of an unsuccessful strategy. All risks lie only on the depositor. In addition, unlike deposits, investments are not insured by the state.

Many factors influence the profitability and successful investment activity of funds:

Experts recommend taking into account the rules of diversification when investing. For example, it is not worth transferring all free funds only to highly liquid securities of IT companies or real estate. There should be different assets in the share, it will not be superfluous to take a closer look at the shares of oil and pharmaceutical companies. When one of the directions draws down, you can always swim out at the expense of the other and stay in the black.

Summing up

ZPIF is a universal financial instrument that, with the professional and competent work of the management company, can bring high profits to the investor.

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