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Open-end and closed-end funds have more similarities than differences. In either case, a registered investment adviser manages a portfolio of securities, with ownership of that portfolio then subdivided into the shares owned by investors. Each trading day, the NAV of the fund rises or falls based on market prices of portfolio securities and any dividend or interest income generated by the stocks and bonds in the portfolio. The registered investment adviser has a contract with the Board of Directors for the fund and is paid a percent of portfolio assets under management plus bonuses for hitting or exceeding certain benchmarks.
The differences include, first, how the shares of the fund are bought and sold by investors. Open-end fund shares are sold from the fund to investors and repurchased from investors who want to redeem/sell them. Closed-end fund shares, on the other hand, trade on the secondary market. Therefore, a closed-end fund such as BXMX is bought and sold just like shares of MSFT or MCD are—among investors. For that reason, the market price of a closed-end fund may be higher or lower than the NAV. Open-end fund shares do not have market prices. They are redeemed for the next-calculated NAV and purchased based on the next-calculated NAV—sometimes with a sales charge added.
The other difference is that closed-end funds typically use leverage. That means some investors are preferred stockholders and some may hold bonds. Both types of investors have higher claims on the income generated by the portfolio than do owners of the common shares. This is what makes closed-end funds as a class more aggressive than open-end funds, even if the portfolios hold similar securities.