SHARETIPSINFO >>Articles Directory >> Closed ended funds

Share market deals with the trading of shares. The main target of share market is making profit through the sales of shares. There are different types of funds prevailing in the share market. The most common and basis one is a closed end fund.

Closed end funds are mutual funds where the number of shares permitted for sales are restricted. The price of trading for mutual funds categorized as closed end funds is determined by several factors. The factors influencing the trading price are the supply and demand of shares. The determining shares will be outstanding in the market. The underlying security is the factor determining the rate of ordinary mutual funds. The net asset value of this security influences the price of a normal mutual fund.

The conditions determining all the aspects of the closed end fund is declared at the time of the first public offering of the shares. Often it is seen that the competition for closed end funds will be quite tough. This happens because; the trading price of closed end fund is interfered with the market price. The limited availability of the shares has an influence on the additional incentives available.

With closed end funds, the number of shares available is limited. Hence often the investors will have to compete to get shares. This makes the price of the shares to go high. The working of closed end funds is highly important to understand. This helps you to decide whether to secure a closed end fund or not. If the share is having high value than the underlying, the funding is said to be in premium trading. If the market value is keeping on increasing, the securing of shares at this time is advisable.

If the value of the shares is less, the shares are said to run at discount. The investor should try to observe the closed end fund rather than observing the underlying before trying to get the shares. If there is a chance that the price of the shares can increase in the future, then buying the shares is good and appreciated. But if the share value cannot increase in the future, there is no point in buying the share.

Thus the closed end funds have great importance in determining whether an investor should buy a share. The value of these funds can determine the investors decision. They are advised to buy shares based on the value of the closed end funds. Their value can be stagnant, increasing or decreasing. Hence this must be the criteria in selecting the option on whether to buy shares. 

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