When comparing closed-end funds with open-end funds, which statement is true?

Open-end funds redeem their shares, which is a key characteristic of this type of fund. When investors want to liquidate their investment in an open-end fund, they can sell their shares back to the fund itself at the net asset value (NAV) per share. This mechanism allows for a continuous inflow and outflow of shares, with the total number of shares outstanding fluctuating based on investor transactions.

Closed-end funds, on the other hand, function differently. They issue a fixed number of shares during an initial public offering (IPO) and subsequently trade on an exchange, similar to stocks. The price of closed-end fund shares can fluctuate based on supply and demand in the market and can trade at a premium or discount to the NAV.

The other statements do not accurately reflect the characteristics of these funds. Closed-end funds do not issue shares continuously; they have a fixed number of shares after their IPO. While closed-end funds may issue various types of shares, they do not exclusively issue common stock, as some may also issue preferred shares. The pricing for closed-end funds is based on market conditions and can differ from NAV, making the statement regarding sales charges also incorrect.