Dual Purpose Fund
Categories: Investing, Managed Funds
A closed-end investment company has shares that trade publicly, similar to the shares of public companies. These shares go up and down in the market, just like regular stocks.
A dual purpose fund will have two classes of stock. One type of shares will trade on the stock exchange, just like any other closed-end fund. The other type of stock works differently. Instead of bouncing around in the open market, it gives the holder income from the funds dividends.
So the first class lets investors make money on capital appreciation. If the fund's investments make money, the value of the shares go up. The investor can make money by selling at the higher price...capital appreciation.
The second class of shares only relates to dividends. The investor makes money by receiving regular cash payments, based on the dividends the fund earns from its investments. There's less upside here. But also less chance of losing money.
The two class of shares appeal to different types of investors. Wild-eyed aggressive investors can bet their money on big returns. They buy the common shares that trade in the market. Meanwhile, retiring wallflower types looking for a steady-eddy source of dividend payments can go for for the dividend class of stock.
Dual Porpoise Fun is something totally different, and not legal in most states.
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Finance: What is a Closed-End Fund?1 Views
Finance a la shmoop what is a closed-end fund? well it's a type of mutual fund [Man approaches mutual fund desk]
only like a bank at any convenient time it's closed
like its assets are enclosed in its price closed means that the fund itself
doesn't actively trade assets back and forth inside of it on a daily basis like
the most famous closed-end mutual fund in the world is Berkshire Hathaway [Man pushing pram of a baby with Berkshire Hathaway briefcase for a head]
Warren Buffett's you know other child the successful one it owns 40 or 50 key
assets from Geico to train companies to metal machinery firms in Israel to
boatloads of shares of stocks like coca-cola and Gillette and Wells Fargo
all of those assets are wrapped up in a tidy BRK bow and the stock market values [Stock market values appear]
ticker BRK daily by trading it back and forth among investors so yes the assets
inside of the fund do change but in an analogous mutual fund that is open the
value placed on the shares is at what is called net asset value, that value is
calculated by just adding up the 843 stocks at the mutual fund owns or however
many the number is and then just calculating a value based on the number [Calculation appears]
of share units comprising that open end mutual fund the closed-end fund has no
changes that way it's just investors valuing the whole bucket of investments
in one closed number now if you'll excuse us we have to get back to [Baby crying in a crib with Berkshire Hathaway briefcase for head]
babysitting for Warren Buffett isn't she just an angel