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If there’s one area of the investment world that offers some of the greatest potential for dividend yield yet is among the least understood, it’s the category of closed-end mutual funds.

To get a better handle on why and how closed-end funds can be so rewarding, you’ve got to understand their quirky nature and how they differ from their more well-known siblings, open-end mutual funds.

Closed vs. Open

Most mutual funds are of the latter variety, in which a fund company sponsor prices the securities it holds in the fund at the end of each trading day based on their closing prices and stands ready to issue and redeem shares in the fund based on the net asset value of those underlying securities. The number of shares in the fund itself, therefore, can fluctuate, but their price is always tied to the value of all the securities in the fund.

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