What are Closed-End Funds?
Closed-end funds are investment tools available to the public that are offered for subscription, listed for trading, and established with fixed capital. These funds consist of units, each representing ownership of a fixed asset. The units are traded in financial markets, such as REITs and stocks, during official trading hours. Like any instrument traded in the financial market, closed-end mutual funds are subject to oversight and supervision by the Capital Market Authority, and each is traded according to its jurisdiction. Financial market regulations also require closed-end funds to maintain high levels of disclosure and transparency.
What are the Characteristics of Closed-End Funds?
1. Investment Opportunity: They provide liquidity to investors by allowing the buying and selling of fund units during trading hours.
2. Ease of Investment: Closed-end funds are characterized by clear systems and ease of dealing with their units, allowing transactions similar to stocks and real estate investment funds listed on the financial market.
3. Transparency Requirements: Fund managers are obligated to submit periodic reports based on the activity of each fund, which are displayed on Tadawul like other reports for companies listed on the market.
4. Diversification of Assets: Closed-end mutual funds are characterized by a diversity of investment areas within one fund. They differ from REITs in terms of profit distribution, asset ownership, and investment methods.
What are the Restrictions for Closed-End Funds Traded in the Main Market?
There are many areas available for fund managers to invest in, including but not limited to securities, private funds, private companies, and money markets. However, the following restrictions must be taken into account:
- Investment in private funds shall not exceed 25% of the fund's net asset value.
- The fund manager may not invest the fund's assets in real estate investment.
- The fund manager may not invest more than 25% of the fund's net asset value in a single illiquid asset.
- The fund's borrowing may not exceed 30% of its net asset value.
