What is a characteristic of a closed-end mutual fund trust?

A closed-end mutual fund trust is designed to pool money from investors to invest in a portfolio of securities, typically structured as a trust. The characteristic that it can pass income directly to unit holders without being taxed at the trust level is a defining feature of many mutual fund structures, including closed-end funds. This means that the income generated from investments, such as dividends or interest, can be distributed to the unit holders, who then report this income on their personal tax returns. This pass-through taxation feature can be advantageous for investors, allowing them to avoid double taxation — where both the entity and the individual would be taxed on the same income.

The other options present misleading or incorrect characteristics of closed-end mutual fund trusts. For instance, higher taxation rates generally do not apply to these funds specifically; they are designed to offer favorable tax treatment to investors. Additionally, closed-end mutual funds have flexibility in their investment strategies and are not limited to government bonds; they can invest across various sectors and asset classes. The requirement for a minimum investment period of five years does not align with the operational framework of a closed-end fund, which typically allows for shares to be bought and sold on the open market, providing liquidity to investors. This liquidity distinguishes them from traditional investments that may