There are two types of mutual funds — open-end funds and closed-end funds. Imagine they’re twins who share the same DNA but go through life doing things very differently.

Both fund types sell shares to investors and use the cash that’s invested to buy securities that match their investment missions. But that’s where the similarities end.

You may have also heard a lot about exchange-traded funds. These newly popular function similarly but they’re not “mutual funds,” as you’ll soon see. When people say “mutual funds” they’re usually referring to open-end funds. These guys can sell an unlimited number of shares to investors. The price per share—also known as the net asset value (NAV)—is calculated by dividing the market value of the fund’s assets by the number of shares held by investors.

So—if a fund has net assets of $100 million and there are 5 million fund shares in the hands of investors, the fund’s share price would be $20. That’s why open-end mutual funds trade only at the end of each day, when trading stops and the final price can be calculated.

Most people own the open-end variety in their retirement and taxable accounts.

Now let’s look at the lesser-known twin—closed-end funds. These funds issue a set number of shares that trade on the stock exchange throughout the day. The value of these shares is based on demand. If lots of investors buy shares, the price goes up. If lots of investors dump them, the price goes down.

What if a closed-end fund’s share price is lower than the fund’s net asset value? Meaning, what if the price tag on a bag of coins is less than the value of the coins inside? You’d get a discount on your investment.

The same is true for closed-end funds. If you invest in a fund with a share price that’s lower than its NAV, congratulations, you’re getting a discount. If the gap between that fund’s share price and its NAV narrows after you invest, you’ll receive a bonus when you sell shares. Just as if the price of that bag of coins went up when you sold it.

But don’t get too worked up. Most closed-end funds offer a discount. The key is how much of a discount they’re offering and whether you think the fund will perform well over time. If it does, and the discount shrinks after you’ve purchased shares then you earn a profit.

Like open-end funds, closed-end funds come in dozens of types ranging from U.S. stock and bond funds to funds that invest in a singe country or region. But don’t confuse a closed-end fund with a “closed fund.” A closed fund is an open-end fund that no longer accepts new investors.

Closed-end funds tend to be actively managed—meaning the manager of the fund buys and sells securities often in an effort to outperform the fund’s benchmark index. The result may be higher fees and increased taxes, if you hold the fund in a taxable account.