Just about every investor is aware of mutual funds and exchange-traded funds (ETFs). But you might not have heard about closed-end funds (CEFs), a much smaller group of investment funds that nonetheless pack a mighty punch.
And that’s a shame.
CEFs provide a diverse range of investment options, covering nearly every asset class imaginable. These include not only stocks and corporate bonds but also tax-exempt municipal bonds and a variety of other assets, even those considered illiquid and challenging to include in conventional mutual funds. They also have a few key differences from their mutual fund and ETF brethren that allows them to offer monster yields and the potential for robust trading gains, which has made them integral to income-focused portfolios.
But what exactly is a closed-end fund, and how do you know what constitutes a good one? Today, we’re going to break down this market niche, then we’ll present you with our updated list of the best CEFs for 2025.
Disclaimer: This article does not constitute individualized investment advice. These funds appear for your consideration and not as investment recommendations. Act at your own discretion.
Editor’s Note: The tabular data presented in this article is up-to-date as of May 21, 2025.
Featured Financial Products
Table of Contents
What Is a Closed-End Fund?
A closed-end fund is a special type of fund that shares certain things in common with their cousins: traditional open-end mutual funds and exchange-traded funds (ETFs).
But there are also critical differences that make CEFs very different from both.
CEFs vs. Mutual Funds vs. ETFs
CEFs are best understood by comparing them to the competition.
You’re likely very familiar with open-end mutual funds, which are the investment vehicle of choice for 401(k)s and other retirement plans. But you may not actually understand how they work.
When you invest in an open end mutual fund, you (or your broker) actually sends cash to the fund, which the manager then uses to buy stocks, bonds or other securities. And when you redeem, the mutual fund manager will send you or your broker the cash, even selling securities to free it up if need be.
Exchange-traded funds are different. Investors can buy or sell ETFs exactly as they would any stock. They trade on major stock exchanges.
Unlike mutual funds, you don’t actually send the manager money. New ETF shares can be created or destroyed by institutional investors based on market demand. (When shares are created, an institutional investor will essentially buy up the shares of stocks and bonds owned by the ETF, then trade them to the fund for shares of the ETF itself. When shares are destroyed, the institutional investor receives the underlying holdings.)
This creation and destruction of new ETF shares ensures that the ETF’s market price never deviates too far from the net asset value (NAV), or the value of the underlying holds.
And this brings us to CEFs.
CEFs Pool Funds From Several Investors
Like open-end mutual funds and exchange-traded funds, closed-end funds are pooled investment vehicles. You have many investors pooling their assets into a common fund, which is invested by a manager or a team of managers. (And while mutual funds and ETFs can be index funds, which are rules-based and effectively run by computers, all CEFs are actively managed.)
Unlike mutual funds—but like exchange-traded funds—closed-end funds trade on a stock exchange. You buy the shares in a brokerage account and never send the manager cash.
Because ETFs and CEFs don’t have to meet redemptions like open-end mutual funds, liquidity is less of an issue. They can hold thinly traded or illiquid securities without having to worry about selling them due to a wave of redemptions.
But unlike exchange-traded funds, closed-end funds have no creation or destruction of shares. A CEF actually holds an initial public offering (IPO) when it creates its shares, and that number of shares is fixed. That might sound like a mundane detail, but it’s actually one of the most important aspects of CEFs. Here’s why:
1. Net Asset Value
Net asset value is the value of a fund’s net asset position (the value of the stocks, bonds, and other securities it owns minus any liabilities) divided by the number of shares outstanding.
Open-end mutual funds are always valued at their net asset value. And with exchange-traded funds, the shares’ net asset value will never deviate too much from the market price due to the creation and destruction mechanism. But because CEFs have no such mechanism, the market price of the shares can vary wildly from the net asset value. They can trade at large premiums to net assets or—benefiting us—at deep discounts.
Many closed-end fund investors prefer to buy CEFs when they are trading at deep discounts to net asset value. Why not? It’s intuitively appealing to buy that proverbial dollar for 95 cents.
2. Leverage
Leverage is finance-speak for borrowing money to invest. This can boost returns, but it also increases risk. If you own a home, you know how this works. An increase or decrease in property value has an outsized impact on your home equity.
Closed-end funds will generally employ at least a modest amount of leverage, though it is not uncommon for a CEF to be leveraged as much as 30% to 40%. Of course, CEFs generally don’t “borrow on margin” like regular mom-and-pop investors. They generally have access to more sophisticated—and cheaper—funding options.
This leverage is a major reason that CEFs are able to generate some of the highest yields in the entire stock market. But it comes with risks. The same leverage that boosts returns when assets are rising compounds the losses when assets are falling. Furthermore, many CEFs tend to borrow at (normally) cheaper short-term rates and invest the proceeds in longer-term assets. That strategy is most profitable when the yield curve is steep (long-term rates are much higher than short-term rates), but it can be difficult to navigate when the yield curve is inverted (when short-term rates are higher than long-term rates), which was the case for a long stretch between July 2022 and October 2024.
When evaluating closed-end funds, you will want to take the leverage into consideration.
3. Distributions
The majority of closed-end funds are income funds. Whether they are fixed-income closed-end funds (bonds) or equity closed-end funds (stocks), chances are good that income is a major investment objective, and CEFs tend to offer high yields.
CEFs generally do not pay taxes at the fund level so long as they distribute 90% or more of their dividend and interest income, and 98% of their realized capital gains. This tax incentive is another factor in the outsized payouts we see in this space.
Closed-end funds’ payouts are referred to as distributions. CEF distributions will generally come from some combination of four sources:
1. Interest on fixed income or other interest-bearing securities
2. Dividends from stocks
3. Realized capital gains
4. Return of capital
That last item needs a little explaining. A return of capital can be “constructive,” in that the proceeds represent unrealized capital gains and don’t erode the value of the fund. Or they can be “destructive” in that the fund is simply giving investors their own money back.
Even destructive return of capital isn’t necessarily destructive nor nefarious. CEFs will often smooth out their distributions to give their investors an even income stream, and sometimes this might mean distributing more than current earnings would support. If it is temporary, it’s generally not a problem. But keep an eye out for it. If return of capital makes up a large proportion of the CEF’s distribution, they might need to cut the distribution in the not-too-distant future.
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.
A Note on How Distributions Affect Taxes
The varied mix of income sources mean that your distributions will be taxed at different rates, all of which will be broken down on the 1099 you receive from your broker.
In the case of municipal bond CEFs, the vast majority of your distribution will be classified as tax-free. You would only have taxable income if the fund sold bonds and generated realized capital gains, in which case you would owe taxes at the short- or long-term capital gains tax rate. And any return of capital would lower your cost basis, thus setting you up for capital gains in the future when you eventually sell your shares.
For taxable CEFs, your distribution will be a mixture of dividends, ordinary income (interest) and short and long-term capital gains. As with tax-free muni funds, in the event of return of capital you will also have a lower cost basis, which will come into play when you eventually sell.
Related: 7 Best High-Dividend ETFs for Income-Minded Investors
Top Closed-End Funds You Can Buy
With that as background, let’s now take a look at the best closed-end funds to buy in 2025.
As with any investment strategy, diversification is critically important. So, we’re going to cover a variety of CEFs, including both equity closed-end funds and fixed-income closed-end funds.
Like Young and the Invested’s Content? Be sure to follow us.
1. Eaton Vance Municipal Income Trust
— Style: Tax-free municipal bond
— Assets under management: $409.0 million
— Distribution rate: 6.0%
— Distribution frequency: Monthly
— Expense ratio: 2.34%, or $23.40 per year on $1,000 invested
Let’s start with a good tax-free municipal bond CEF: the Eaton Vance Municipal Income Trust (EVN).
Managers William Delahunty and Cynthia Clemson are tasked with building a tax-advantaged portfolio of municipal bonds—bonds issued by sub-federal entities including states, counties, and cities. For instance, tops among EVN’s 240 holdings are bonds from Miami-Dade County, Florida; the Alameda (California) Corridor Transportation Authority; and the New Jersey Economic Development Authority.
Related: 5 Best Fidelity Retirement Funds [Low-Cost + Long-Term]
Most of the portfolio is investment-grade in nature, though 15% is considered below investment-grade (aka “junk”), and another 15% isn’t rated by the major bureaus. (Note: Unrated bonds aren’t necessarily of low quality.)
EVN also utilizes a heavy amount of leverage, currently 30%. That allows management to invest more than its actual assets in hand, which has a few effects. On the upside, it improves the fund’s yield and amplifies gains when the fund’s bonds grow in value. On the downside, it also amplifies losses. In short: You’re getting a more volatile muni-bond experience than you’d get from a traditional mutual fund or ETF.
As I mentioned before, one of the most important aspects of municipal bonds is the tax treatment. At current prices, EVN yields a tax-free 6%. If you’re in the 37% tax bracket, and you’re also paying the 3.8% federal net investment income tax (NIIT), you’d need to buy a taxable bond yielding 10.14% to get the same amount of after-tax yield that EVN provides!
A couple other things to note: Like many CEFs, Eaton Vance’s muni-fund pays distributions on a monthly basis. Also, EVN currently trades at a small 2% discount to NAV.
Related: 5 Best Vanguard Retirement Funds [Save More, for Less]
2. BlackRock 2037 Municipal Target Term Trust
— Style: Tax-free municipal bond
— Assets under management: $148.8 million
— Distribution rate: 4.7%
— Distribution frequency: Monthly
— Expense ratio: 1.00%, or $10 per year on $1,000 invested
Most investment funds are set up so, if they wanted to, they could keep running until the end of time.
But some CEFs are different. “Term funds” are a special kind of closed-end fund that has a shelf life, at the end of which it will liquidate and return its cash to shareholders. The BlackRock 2037 Municipal Target Term Trust (BMN) is a variation of this called a “target term fund,” which liquidates at a fixed point in the future and at a targeted price.
BMN’s objective is to liquidate on or around Sept. 30, 2037, and return exactly $25 per share. (For reference, BMN trades at $24.12 as I write this.)
That $25 is not guaranteed, of course. And there is no promise the managers will be successful in getting there. But that is their goal, and it’s relatively simple to structure a bond portfolio so that it matures on a specific date with a known par value.
Related: 11 Best Alternative Investments [Options to Consider]
At current prices, BMN trades at a modest 3.0% discount to net asset value and yields 4.7%. Assuming a 37% tax bracket and the NIIT, that’s a 7.9% tax-equivalent yield.
BMN is a relatively new fund, having launched in late October 2022. The timing couldn’t have been better, as the fund was building out its portfolio just as long-term yields were hitting multi-year highs. What better time to start than when yields are high and prices are low?
By the way: You might be wondering why a fund would choose to liquidate, and the answer is simple. CEFs often trade at discounts to net asset value. That might seem good: After all, value investors buy underappreciated assets, waiting for them to improve in price as other investors realize their worth. But in the absence of a catalyst, discounted CEFs can stay at a discount forever.
That’s where term funds come into play. Term funds liquidate at net asset value. That means that, as the CEF approaches the end of its term, the discount should naturally close. This gives investors a degree of safety that doesn’t exist in traditional closed-end funds.
Related: 12 Best Investment Opportunities for Accredited Investors
Featured Financial Products
3. BlackRock Floating Rate Income Trust
— Style: Floating-rate income
— Assets under management: $278.2 million
— Distribution rate: 11.8%
— Distribution frequency: Monthly
— Expense ratio: 2.86%, or $28.60 per year on $1,000 invested
Bond yields surged higher for most of 2022 and 2023, which wreaked havoc on many fixed-income portfolios. (The math on bonds is simple: If bond yields go up, then prices come down, and vice versa.)
Related: The 7 Best Dividend ETFs [Get Income + Diversify]
A way to minimize this seesaw effect is to focus on floating-rate securities. These bonds have regular resets that tie the coupon payment to prevailing market interest rates. So, as market yields rise, so does your payout!
The flipside, of course, is that falling yields mean a smaller payout. So, the degree to which you want to own floating-rate securities ultimately comes down to what direction you expect interest rates to trend. But regardless, having at least a little exposure to floating rates makes sense, if for no other reason than to offer diversification.
Related: 5 Best Vanguard Dividend Funds [Low-Cost Income]
One solid option is the BlackRock Floating Rate Income Trust (BGT). BGT is required to invest at least 80% of its assets in floating- and variable-rate instruments. The average effective duration of its portfolio is not expected to be more than 1.5 years. In plain English, that means that a 1% rise in market interest rates would translate to just about 1.5% in capital losses, or a 1% drop in market interest rates would translate to about 1.5% in capital gains. And remember: That is the maximum. The current effective duration at time of writing is a meager 0.08 years, meaning a move in market interest rates should have a negligible effect on BGT’s share price.
Said differently: Don’t expect this CEF to get whipped around by volatility in the bond market.
It might behoove would-be investors to wait on this one, however. At current prices, BGT actually trades at a small 1% premium to NAV, meaning that if you buy this CEF, you’re spending $1.01 for every $1.00 in assets. Of course, you’d also collect a wild distribution of nearly 12%.
Related: The 7 Best Vanguard Index Funds for Beginners
4. General American Investors
— Style: Large-cap stock
— Assets under management: $1.3 billion
— Distribution rate: 0.5%
— Distribution frequency: Annually
— Expense ratio: 1.11%, or $11.10 per year on $1,000 invested
Let’s move on to equity CEFs, where I want to start with a big exception to the rule.
Most closed-end funds offer extremely large distributions, even if it means using realized capital gains and return of capital because the fund doesn’t generate much dividend or interest income.
Related: 10 Best Dividend Stocks to Buy [Steady Eddies]
General American Investors (GAM), however, seems content to simply deliver higher prices on its shares.
General American Investors, founded in 1927, is the oldest surviving CEF—a pretty straightforward and narrow fund that seeks out growth stocks trading at reasonable prices. President, CEO, and Portfolio Manager Jeffrey W. Priest has built a portfolio of roughly 60 large-cap stocks. Some top holdings, such as Berkshire Hathaway (BRK.B) and Microsoft (MSFT), you can find at the top of most large-cap index funds. But Priest has also put an emphasis on a few midsized and smaller large caps, such as waste disposal company Republic Services (RSG) and insurer Arch Capital (ARCH).
GAM does use a moderate amount of leverage (11% currently). While that hardly does anything for its yield, that leverage had made some sort of difference in the fund’s returns. Over the past 30 years, GAM has actually outperformed the S&P 500, about 2,080% to 1,840%, on a total-return basis (price plus dividends).
Better still: GAM trades at a thick 13% discount to NAV, meaning you’re buying its assets for 87¢ on the dollar.
Related: 13 Dividend Kings for Royally Resilient Income
5. Tortoise Energy Infrastructure Corp.
— Style: Energy infrastructure stock
— Assets under management: $712.2 million
— Distribution rate: 10.6%
— Distribution frequency: Monthly
— Expense ratio: 2.82%, or $28.20 per year on $1,000 invested
If you are looking for income, energy infrastructure should be one of the first places you look.
Oil-and-gas pipeline stocks offer some of the highest yields in the entire stock market. Some of this is due to their unique tax structure. Because of their high non-cash depreciation expenses, pipeline stocks tend to pay comparatively little in taxes. And the pipeline stocks organized as master limited partnerships (MLPs) pay no company income taxes at all so long as they distribute at least 90% of their profits as distributions.
Related: 7 Best High-Dividend ETFs for Income-Minded Investors
One of the major downsides to owning MLPs is the tax reporting, though. The annual K-1 tax forms can be a real bear to deal with, even for experienced tax preparers.
This is where an MLP closed-end fund can really add value. You get a diversified basket of quality pipeline stocks without the tax hassle of owning the stocks outright.
Related: 7 High-Quality, High-Yield Dividend Stocks
There are several energy infrastructure CEFs out there, but one in particular I like is the Tortoise Energy Infrastructure Corp (TYG). The fund owns a diversified basket of MLPs and corporate pipeline stocks, with the majority of the portfolio invested in natural gas infrastructure.
America’s energy grid is getting greener every day as renewable energy in wind and solar gain market share. But natural gas is still a critical and growing piece of America’s energy grid and likely will be for the rest of our lifetimes.
TYG currently trades at a large 10% discount to NAV and yields a stellar 10.6%.
Related: Best Vanguard Retirement Funds for a 401(k) Plan
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.
6. Neuberger Berman Real Estate Securities Income Fund
— Style: REITs and preferred stock
— Assets under management: $206.5 million
— Distribution rate: 11.5%
— Distribution frequency: Monthly
— Expense ratio: 2.70%, or $27.00 per year on $1,000 invested
Real estate investment trusts (REITs) have gone through some rough patches over the past few years. Because REITs have always had a major emphasis on income, investors have come to view them as a bond substitute. But when bond yields started to surge higher again in 2022, bond prices collapsed … and REIT prices fell in sympathy.
In 2024, however, when it appeared that bond yields had topped out, REITs mounted a strong recovery.
Where will they go from here? It’s possible REITs could do all right regardless of what bond yields do. If yields fall—and bond prices rise—then REIT prices should also benefit. If inflation proves to be stubborn and yields remain high, REITs should be in a better position than they were a year ago, as the rents they collect from tenants should also trend higher in line with inflation.
One way to play a recovery in REITs is via the Neuberger Berman Real Estate Securities Income Fund (NRO). Two-thirds of assets is invested in REIT common shares, while the remaining third is holed up in preferred stock (high-yield “hybrid” securities that have features of both stocks and bonds).
If you believe that REITs are attractive, NRO is a solid option. It yields a massive 11.5% at current prices and trades at a decent 4% discount to NAV.
Related: 8 Best-in-Class Bond Funds to Buy
7. BlackRock Enhanced Equity Dividend Trust
Style: Equity options
Assets under management: $1.5 billion
Distribution rate: 8.7%
Distribution frequency: Monthly
Expense ratio: 0.88%, or $88 per year on $10,000 invested
Covered call writing has always been a popular strategy for income investors. In a covered call trade, you write—or sell—options against a stock position you own, collecting the option premium as income.
For example, let’s say you own 100 shares of Microsoft (MSFT) currently trading at $375. You could sell a call option that expires in a month at a strike price of $400.
If, a month from now, Microsoft is trading below $400, great! The option expires worthless and you keep the premium from the original sale.
Related: The 9 Best Dividend Stocks for Beginners
But let’s say that Microsoft enjoys a nice run and blasts higher to $405. What happens now? The person you sold the call option to has the right to buy the Microsoft shares from you for $400 per share. No problem. You missed out on a little upside, but you still sold at a profit and you still get to keep the premium from the option you sold. Not a bad deal!
If you’d like to have a pro handle all of this for you, consider the BlackRock Enhanced Equity Dividend Trust (BDJ). The fund holds a diversified basket of dividend paying stocks and then further enhances the income by writing covered calls on them.
At current prices, BDJ trades at a nice 7% discount to net asset value and yields well north of 8%.
Want to talk more about your financial goals or concerns? Our services include comprehensive financial planning, investment management, estate planning, taxes, and more! Schedule a call with Riley to discuss what you need, and what we can do for you.
Featured Financial Products
Related: The Best Fidelity ETFs for 2025 [Invest Tactically]
If you’re looking to build a diversified, low-cost portfolio of funds, Fidelity’s got a great lineup of ETFs that you need to see.
In addition to the greatest hits offered by most fund providers (e.g., S&P 500 index fund, total market index funds, and the like), they also offer specific funds that cover very niche investment ideas you might want to explore.
Related: 10 Best Monthly Dividend Stocks for Frequent, Regular Income
The vast majority of American dividend stocks pay regular, reliable payouts—and they do so at a more frequent clip (quarterly) than dividend stocks in most other countries (typically every six months or year).
Still, if you’ve ever thought to yourself, “it’d sure be nice to collect these dividends more often,” you don’t have to look far. While they’re not terribly common, American exchanges boast dozens of monthly dividend stocks.
Please Don’t Forget to Like, Follow and Comment
Did you find this article helpful? We’d love to hear your thoughts! Leave a comment with the box on the left-hand side of the screen and share your thoughts.
Also, do you want to stay up-to-date on our latest content?
1. Follow us by clicking the [+ Follow] button above,
2. Subscribe to Retire With Riley, our free weekly retirement planning newsletter, and
3. Give the article a Thumbs Up on the top-left side of the screen.
4. And lastly, if you think this information would benefit your friends and family, don’t hesitate to share it with them!
