While closed-end funds have relatively low expense ratios, investors may incur added costs in the form of brokerage commissions to buy or sell fund shares. These trading costs are not part of the fund’s expenses. Investors should consider these costs, particularly those that trade frequently.
Closed-end funds also have specific risks that investors should understand before investing:
- Shares trade on exchanges and market prices may be above (premium) or below (discount) the fund’s NAV.
- As with any other investment, there is no guarantee of investment performance.
- Closed-end funds often use leverage, which increases a fund's risk and volatility.
- Closed-end funds can invest in illiquid securities, which may also increase risk.