When we talk about closed end funds, we know that closed end funds do not take new investments into the fund or redeem investor shares. Why, then, do their shares trade on the exchanges? My understanding is that when their shares are trading on exchanges, they are able to raise capital in secondary market. What could be the use of this capital for a closed end fund?
Also, I believe a closed end fund is similar to what any firm does with its issue of equity in primary markets, which then goes on to the secondary market (at a later point in time).
Is it that a group of selected investors pool in money and form this closed end fund? Their PM looks after this fund, much like a CEO looks after a firm. Have I understood the idea of closed end funds correctly?
If yes, then what’s the use of issuing shares on exchanges? In case of open end funds, investors can buy newly issued shares at the NAV. The capital, thus, raised is added to the already exisiting pooled funds. So, in open end funds, the amount increases as investors buy more shares.
Quick question: Is my understanding on open ended mutual funds correct?
If yes, how is it possible to expand the pool at a later point in time when the IPS is written initially and allocation done during the “execution” stage?