Closed ended mutual funds are also traded publicly, so why are you saying that they cannot be bought and sold on the exchange?
Open ended funds can only be bought and sold to the AMC while closed ended funds trade like normal shares on the exchange.
But I cannot find any closed ended funds on the stock exchange. Why so? Also, suppose I invest in a non-dividend paying mutual fund, and that mutual fund gets a dividend from a particular stock, what happens to this dividend? Is it reinvested?
Here are some clear cut clarifications:
Open Ended funds - You can buy it at any time, you will get NAV i.e units invested and you are free to sell those any time when you want, only through those same Mutual funds company, coz they will sell those holdings from the pooled sum and will give you your share from the redemption of those units.
Close ended funds - You can only buy it at inception period which is usually for a limited period of time. After you buy a close ended funds you are locked in for the duration of the fund which is minimum 3 years.
These close ended funds are listed on exchange, but that is on no use as mostly selling price is way below NAV of these funds. So if one has issues about liquidity then think twice before buying a Close ended funds, as their idea is to lock in investor for minimum period and hence stop them from redeeming their NAVs too soon or in loss.
Now coming to point about dividend.
Dividend paid my the stock to the original unit holder is one thing, than dividend paid by the Mutual funds to the investor.
In both the cases dividend is on no use.
why?
A company issues dividend on stock, and its price get adjusted by the same amount, i.e it is reduced from the same amount. So end game is no gain.
A mutual fund gives divided(barring a few arbitrage funds) which is excess cash to its unit holders and NAV is again adjusted, so the net effect is same as stock. Mutual funds dividend is different than stocks dividend but net effect is same.
So its better if you dont give too much weightage to dividend and invest according to other factors.
I cant answer the last question, but I guess they must be reinvesting it, its fund managers choice.