Let’s be honest: In recent years, closed-end funds have fallen out of favor with average investors. That’s due largely to the rise in popularity of open-end funds and exchange-traded funds (ETFs).

To make this simple, think of an ETF as the cool cousin of the closed-end fund. ETF shares trade on the stock exchange—just like closed-end funds. But ETFs generally track a market index, making them more efficient than closed-end funds and a lot easier to understand. Most ETFs also charge lower fees and are more tax-efficient because the securities in their index-based portfolios aren’t often traded.

All that said, closed-end funds do have a few benefits:

• A closed-end fund’s discount offers you a bonus when the gap between the share price and NAV narrows after investment.
• A closed-end fund’s manager can invest without worrying that cash may be needed to meet sudden redemptions by large numbers of jittery investors, as is the case with open-end fund managers.
• Closed-end funds tend to pay investors higher levels of income because they invest more heavily in income-producing assets.

Bottom line: Unless you’re willing to roll up your sleeves and research closed-end funds and their discounts, you may be better off in a similar open-end fund or ETF.