How are closed-end funds different from mutual funds in terms of share issuance?

Closed-end funds differ from mutual funds primarily in how shares are issued and traded. Unlike mutual funds, which continuously issue and redeem shares at the fund's net asset value (NAV), closed-end funds issue a fixed number of shares at their launch. Once these initial shares are issued, they do not redeem shares from investors. Instead, investors can buy and sell these shares on the open market at prevailing market prices.

This market price can be higher or lower than the NAV, depending on supply and demand dynamics. Therefore, the correct understanding of closed-end funds is that they typically redeem shares at market prices only, reflecting the trading value in the marketplace rather than a fixed NAV. This encapsulates the unique structural characteristic of closed-end funds where initial issuance is limited and ongoing trading occurs through the secondary market.