Closed End Municipal Bond Funds

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A closed end fund is management investment company that is traded in the secondary market. The fund trades OTC or on exchange and charges a commission, just like shares of individual stocks. A closed end muni bond fund operates the same way.

The fund company will pay out dividends to shareholders based on the net income of the fund. Since municipal securities are fixed income investments that pay interest, this type of fund will pay regular dividends and is considered a type of index fund.

The company is actively managed and the investors have the right to vote. The shares can split as well. A net asset value is calculated each day, but the shares trade in the open market and the price is based on supply and demand - as well as market directions.

Since funds can pool money and invest in thousands of municipal bonds, an investor can be partially invested in all of these bonds for much less money than they would need to buy even 1/10 of these bonds on an individual basis. A fund manager will manage cash, maturities and interest rate changes.

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