Advanced Diploma of Financial Planning (ADFP) 2025 – 400 Free Practice Questions to Pass the Exam

The correct answer is closed-end investment companies. These companies issue a fixed number of shares during an initial public offering (IPO) and subsequently trade on an exchange, similar to stocks. The capitalization of closed-end funds does not change after the IPO; the number of shares remains constant unless the company decides to issue more shares in a separate offering.

Investors buy and sell shares of closed-end funds on the stock market, and the price is determined by supply and demand, which can cause the shares to trade at a premium or discount to the net asset value (NAV) of the fund's underlying holdings. This is distinct from open-end mutual funds, which continuously issue and redeem shares at NAV, or unit investment trusts, which have fixed portfolios but are not traded on exchanges in the same way. Exchange-traded funds (ETFs) are also traded on exchanges and are similar to closed-end funds, but they typically allow for continuous buying and selling and often have a mechanism for creation and redemption of shares that keeps the share price close to the NAV.