What Is a Dual Purpose Fund?

What Is a Dual-Purpose Fund?

By Kristi Waterworth – Updated Feb 26, 2025 at 1:26 PM EST

Key Points

Dual-purpose funds offer preferred or common shares, targeting steady income or high returns.
These funds are closed-end, limiting share availability and trading on stock exchanges.
Investor profits depend on share type chosen and market conditions at fund liquidation.

Although not nearly as common as they once were, dual-purpose funds still exist and, for some investors, fill an important function in portfolios. They were much more popular in the 1970s and 1980s but have largely fallen out of favor due to restructured tax laws. However, they still exist, so it's important to understand these investment vehicles.

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A Venn diagram infographic showing the similarities and differences between common and preferred stock. — Image source: The Motley Fool.

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More aggressive stock investors employ something more akin to a growth mindset. Since the common stocks in the dual-purpose fund don't have other benefits, like dividends, they're counting on making all their money at the end of the investment.

So, if they buy into the fund at $10 per share, for example, they're hoping that across the fund's lifespan, the stocks inside will gain considerable value and, perhaps, be worth $20 per share or even $200 per share.

After the conservative investors are paid, common stockholders split the remainder, hopefully at a considerable profit. However, there's always a risk that a dual-purpose fund will lose money. Since it liquidates on a given date planned far in advance, it's impossible to predict the market conditions on that specific date, and it can't simply wait to sell at a more favorable time, given the structure of the fund.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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