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LIKE LOAD vs. no load, you'll hear mutual fund people divide their universe between open-end and closed-end funds. Here's what it means:

Both open- and closed-end funds are pools of investor money managed by professionals to maximize diversification within a set strategy. The difference is in how the fund is structured in terms of ownership.

An open-end fund issues and redeems shares on demand, whenever investors put money into the fund or take it out. This happens routinely every day, and the total assets of the fund grow and shrink as money flows in and out. This means the more investors buy the Vanguard 500 Index fund, for instance, the more shares there will be. There's no limit to the number of shares the fund can issue. Nor is the value of each individual share affected by the number outstanding, since net asset value (NAV) is determined solely by the change in prices of the stocks or bonds the fund owns, not the size of the fund itself.

A closed-end fund is a different animal. Like a company, it issues a set number of shares in an initial public offering, and they trade on an exchange. A fund like the Nuveen Muni Value fund trades on the New York Stock Exchange just like any other stock. Its share price is determined not only by the total value of the assets it holds, but by investor demand for the fund. As a result, the shares tend to trade at a premium or discount to their underlying asset value.

Investing in closed-end funds can be very confusing for the novice investor, and we don't recommend it. But for those who fully understand the market, closed-end funds can be appealing. Savvy investors search for closed-end funds with solid returns that are trading at large discounts and then bet that the spread between the discount and the underlying asset value will close. If you don't understand the mechanics of evaluating the discount spread, however, you're better off sticking to open-end funds.