What is a “closed-end fund”? How is a closed-end fund different from a typical mutual fund?
A closed-end fund is a collective investment scheme that is closed to new investment once the fund starts operating.  A typical open-ended fund will allow you to buy more shares of the fund anytime you want and the fund will create those new shares for you and invest your new money to continue growing assets under management.  A closed-end fund only using the initial capital invested when the fund started operating and no new shares are typically created (always exception in the financial community).  Normally you buy and sell an open-end fund from the fund company directly.  A closed-end fund will usually be bought and sold on the secondary market. Here is some more information from Wikipedia Some characteristics that distinguish a closed-end fund from an ordinary open-end mutual fund are that: Another distinguishing feature of a closed-end fund is the common use of leverage or gearing to enhance returns. CEFs can raise additional investment capital by issuing auction rate securities, preferred shares, long-term debt, and/or reverse-repurchase agreements. In doing so, the fund hopes to earn a higher return with this excess invested capital.
Behind the scenes, mutual funds and ETFs are very similar.  Both can vary widely in purpose and policies, which is why understanding the prospectus before investing is so important. Since both mutual funds and ETFs cover a wide range of choices, any discussion of management, assets, or expenses when discussing the differences between the two is inaccurate.  Mutual funds and ETFs can both be either managed or index-based,  high expense or low expense, stock or commodity backed. Method of investing When you invest in a mutual fund, you typically set up an account with the mutual fund company and send your money directly to them.  There is often a minimum initial investment required to open your mutual fund account.  Mutual funds sometimes, but not always, have a load, which is a fee that you pay either when you put money in or take money out. An ETF is a mutual fund that is traded like a stock.  To invest, you need a brokerage account that can buy and sell stocks.  When you invest, you pay a transaction fee, just as you would if you purchase a stock.  There isn't really a minimum investment required as there is with a traditional mutual fund, but you usually need to purchase whole shares of the ETF.  There is inherently no load with ETFs. Tax treatment Mutual funds and ETFs are usually taxed the same.  However, capital gain distributions, which are taxable events that occur while you are holding the investment, are more common with mutual funds than they are with ETFs, due to the way that ETFs are structured.  (See Fidelity: ETF versus mutual funds: Tax efficiency for more details.)  That having been said, in an index fund, capital gain distributions are rare anyway, due to the low turnover of the fund. Conclusion When comparing a mutual fund and ETF with similar objectives and expenses and deciding which to choose, it more often comes down to convenience.  If you already have a brokerage account and you are planning on making a one-time investment, an ETF could be more convenient.  If, on the other hand, you have more than the minimum initial investment required and you also plan on making additional regular monthly investments, a traditional no-load mutual fund account could be more convenient and less expensive. Mutual funds buy (and sell) shares in companies in accordance with  the policies set forth in their prospectus, not according to the  individual needs of an investor, that is, when you invest money in (or withdraw money from) a mutual fund,  the manager buys or sells whatever shares that, in the manager's judgement,  will be the most appropriate ones (consistent with the investment policies). Thus, a large-cap mutual fund manager will not buy the latest hot small-cap stock that will likely be hugely profitable; he/she must choose only between various large capitalization companies. Some exchange-traded funds are fixed baskets of stocks. Suppose you will not invest in a company X as a matter of principle. Unless a mutual fund prospectus says that it will not invest in X, you may well end up having an investment in X at some time because the fund manager bought shares in X. With such an ETF,  you know what is in the basket, and if the basket does not include stock in X  now, it will not own stock in X at a later date. Some exchange-traded funds are constructed based on some index and track the index as a matter of policy. Thus, you will not be investing in X unless X becomes part of the index because Standard or Poor or Russell or somebody changed their minds, and the ETF buys X in order to track the index. Finally, some ETFs are exactly like general mutual funds except that you can buy or sell ETF shares at any time at the price at the instant that your order is executed whereas with mutual funds, the price of the mutual fund shares that you have bought or sold is the NAV of the mutual fund shares for that day, which is established based on the closing prices at the end of the trading day of the stocks, bonds etc that the fund owns.  So, you might end up owning stock in X at any time based on what the fund manager thinks about X. How do (index and active) mutual funds trade? Do they buy stocks as soon as a I buy a share in the mutual fund, or do they have fixed times they trade, such as once every week/month/quarter?   Is it theoretical possible for someone to front run mutual funds, if someone holds individual stocks? Let's say an institutional investor creates an order of $100m in a mutual fund, how likely can a broker, which holds a fraction of the fund's portfolio, front run and take advantage of that trade? It is more likely to front run that fund if it's an active small cap fund, but how likely is it to front run trades for index funds? The issue with trading stocks vs. mutual funds (or ETFs) is all about risk. You trade Microsoft you now have a Stock Risk in your portfolio. It drops 5% you are down 5%. Instead if you want to buy Tech and you buy QQQ if MSFT fell 5% the QQQs would not be as impacted to the downside. So if you want to trade a mutual fund, but you want to be able to put in stop sell orders trade ETFs instead.   Considering mutual funds it is better to say Invest vs. Trade.  Since all fund families have different rules and once you sell (if you sell it early) you will pay a fee and will not be able to invest in that same fund for x number of days (30, 60...) Imagine that a fund had a large exit load that declined over several years. If you wanted to sell some or all of your investment in that fund you would face a large fee, unless you held it a long time. You would be hesitant to sell because waiting longer would save you money. That is the exact opposite of a liquid investment.  Therefore the ideal level for a liquid fund is to have zero exit load. "Ask your trading site for their definition of ""ETF"". The term itself is overloaded/ambiguous. Consider: If ""ETF"" is interpreted liberally, then any fund that trades on a [stock] exchange is an exchange-traded fund. i.e. the most literal meaning implied by the acronym itself. Whereas, if ""ETF"" is interpreted more narrowly and in the sense that most market participants might use it, then ""ETF"" refers to those exchange-traded funds that specifically have a mechanism in place to ensure the fund's current price remains close to its net asset value. This is not the case with closed-end funds (CEFs), which often trade at either a premium or a discount to their underlying net asset value." Not according to the SEC: A mutual fund is an SEC-registered open-end investment company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments.  The combined securities and assets the mutual fund owns are known as its portfolio, which is managed by an SEC-registered investment adviser.  Each mutual fund share represents an investor’s proportionate ownership of the mutual fund’s portfolio and the income the portfolio generates.  And further down: Mutual funds are open-end funds. "Your question is one of semantics.  ETFs and mutual funds have many things in common and provide essentially the same service to investors with minimal differences.  It's reasonably correct to say ""An ETF is a mutual fund that..."" and then follow up with some stuff that is not true of a typical mutual fund.  You could do the same with, for example, a hedge fund.  ""A hedge fund is a mutual fund that doesn't comply with most SEC regulations and thus is limited to accredited investors."" As a matter of practice, when people say ""mutual fund"" they are talking about traditional mutual funds and pretty much never including ETFs.  So is an ETF a mutual fund as the word is commonly used?  No." "It costs money for a mutual fund to accept your money. It doesn't cost as much as it used to, but historically there has been, at a minimum, a modicum of record-keeping associated with it. As such, they will typically have a minimum amount of money they want you to add at a time. They don't want to process 100 transfers of a nickel each; that would be silly. So if you have a mutual fund with a ""minimum initial investment"" of $10,000 and a ""minimum subsequent investment"" of $100, then that means that you can put in $10k to open it, and then deposit dollars in lots of 100 or more whenever you feel like it." "This answer is applicable to the US.  Similar rules may hold in some other countries as well.   The shares in an open-ended (non-exchange-traded) mutual fund are not traded on stock exchanges and the ""market"" does not determine the share price the way it does for shares in companies as brokers make offers to buy and sell stock shares. The price of one share of  the mutual fund (usually called Net Asset Value (NAV) per share) is usually calculated at the close of business, and is, as the name implies, the net worth of all the shares in companies that the fund owns plus cash on hand etc divided by the number of mutual fund shares outstanding. The NAV per share of a mutual fund might or might not increase in anticipation of the distribution to occur, but the NAV per share very definitely falls on  the day that the distribution is declared. If you choose to re-invest your distribution in the same fund, then you will own more shares at a lower NAV per share but the total value of your investment will not change at all.  If you had 100 shares currently priced at $10 and  the fund declares a distribution of $2 per share, you will  be reinvesting $200 to buy more shares but the fund will be selling you additional shares at $8 per share (and of course, the 100 shares you hold will be priced at $8 per share too.  So, you will have 100 previous shares worth only $800 now + 25 new shares worth $200 for a total of 125 shares at $8 = $1000 total investment, just as before. If you take the distribution in cash, then you still hold the 100 shares but they are worth only $800 now, and the fund will send you the $200 as cash. Either way, there is no change in your net worth. However, (assuming that the fund is is not in a tax-advantaged account), that $200 is taxable income to you regardless of whether you reinvest it or take it as cash. The fund will tell you what part of that $200 is dividend income (as well as what part is Qualified Dividend income),  what part is short-term capital gains, and what part is long-term capital gains; you declare the income in the appropriate categories on your tax return, and are taxed accordingly. So, what advantage is there in re-investing? Well, your basis in those shares has increased and so if and when you sell the shares, you will owe less tax. If you had bought the original 100 shares at $10 and sell the 125 shares a few years later at $11 and collect $1375, you owe (long-term capital gains) tax on  just $1375-$1200 =$175  (which can also be calculated as $1 gain on each of the original 100 shares = $100 plus $3 gain on the 25 new shares = $175). In the past, some people would forget the intermediate transactions and think that they had invested $1000 initially and gotten $1375 back for a gain of $375 and pay taxes on $375 instead. This is less likely to occur now since mutual funds are now required to report more information on the sale to the shareseller than they used to in the past. So, should you buy shares in a mutual fund right now? Most mutual fund companies publish preliminary estimates in November and December of what distributions each fund will be making by the end of the year. They also usually advise against purchasing new shares during this period because one ends up ""buying a dividend"".  If, for example, you bought those 100 shares at $10 on the Friday after Thanksgiving and the fund distributes that $2 per share  on December 15, you still have $1000 on December 15, but now owe taxes on $200 that you would not have had to pay if you had postponed buying those shares till after the distribution was paid. Nitpickers: for simplicity of exposition, I have not gone into the detailed chronology of when the fund goes ex-dividend, when the distribution is recorded,  and when cash is paid out, etc., but merely treated all these events as happening simultaneously." Bond ETFs are just another way to buy a bond mutual fund.  An ETF lets you trade mutual fund shares the way you trade stocks, in small share-size increments.  The content of this answer applies equally to both stock and bond funds. If you are intending to buy and hold these securities, your main concerns should be purchase fees and expense ratios.  Different brokerages will charge you different amounts to purchase these securities.  Some brokerages have their own mutual funds for which they charge no trading fees, but they charge trading fees for ETFs.  Brokerage A will let you buy Brokerage A's mutual funds for no trading fee but will charge a fee if you purchase Brokerage B's mutual fund in your Brokerage A account. Some brokerages have multiple classes of the same mutual fund.  For example, Vanguard for many of its mutual funds has an Investor class (minimum $3,000 initial investment), Admiral class (minimum $10,000 initial investment), and an ETF (share price as initial investment).  Investor class has the highest expense ratio (ER).  Admiral class and the ETF generally have much lower ER, usually the same number.  For example, Vanguard's Total Bond Market Index mutual fund has Investor class (symbol VBMFX) with 0.16% ER, Admiral (symbol VBTLX) with 0.06% ER, and ETF (symbol BND) with 0.06% ER (same as Admiral).  See Vanguard ETF/mutual fund comparison page.  Note that you can initially buy Investor class shares with Vanguard and Vanguard will automatically convert them to the lower-ER Admiral class shares when your investment has grown to the Admiral threshold. Choosing your broker and your funds may end up being more important than choosing the form of mutual fund versus ETF.  Some brokers charge very high purchase/redemption fees for mutual funds.  Many brokers have no ETFs that they will trade for free.  Between funds, index funds are passively managed and are just designed to track a certain index; they have lower ERs.  Actively managed funds are run by managers who try to beat the market; they have higher ERs and tend to actually fall below the performance of index funds, a double whammy. See also Vanguard's explanation of mutual funds vs. ETFs at Vanguard. See also Investopedia's explanation of mutual funds vs. ETFs in general. One advantage not pointed out yet is that closed-end funds typically trade on stock exchanges, whereas mutual funds do not.  This makes closed-end funds more accessible to some investors. I'm a Canadian, and this particular distinction matters to me.  With my regular brokerage account, I can buy U.S. closed-end funds that trade on a stock exchange, but I cannot buy U.S. mutual funds, at least not without the added difficulty of somehow opening a brokerage account outside of my country. Mutual funds don't work like stocks in that way. The price of a mutual fund is set at the end of each day and doesn't fluctuate during the day. So no matter when you put in your order, it will be filled at the end of the day at whatever the closing price is for that day. Here is some good information on that There is no continuous pricing of fund shares throughout the trading   day. When an investor places an order to buy or sell a fund's shares,   the order is executed based on the NAV calculated at the end of that   trading day, regardless of what time during the day the order was   placed. On the other hand, if the investor were to check the price of   his or her fund shares halfway through the business day, the price   quoted would be the previous day's NAV because that was the last time   the fund calculated and reported the value. -http://www.finweb.com/investing/how-mutual-funds-are-priced.html "This is another semantics question.  Again what matters is how the words are commonly used, as the usage came about long before the technical definitions. In this case, when people say ""mutual fund,"" they are often including both unit investment trusts and closed end funds.  Despite the labels the SEC has given in order to differentiate them, I'd say it's common (typical) practice to think of a closed-end fund as a type of mutual fund, rather than a different category altogether.  That's the way I've seen it used, anyway." Also, when they mean SP500 fund - it means that fund which invests in the top 500 companies in the SP Index, is my understanding correct? Yes that is right. In reality they may not be able to invest in all 500 companies in same proportion, but is reflective of the composition. I wanted to know whether India also has a company similar to Vanguard which offers low cost index funds. Almost all mutual fund companies offer a NIFTY index fund, both as mutual fund as well as ETF. You can search for index fund and see the total assets to find out which is bigger compared to others.