QUESTION: When is a mutual fund not a mutual fund? Answer: When it is a closed-end fund. For millions of people, closed-end funds are the mystery products of the mutual-fund industry. With names that connote exotic global settings, such as the brand new ''Templeton Russia Fund,'' which began trading Sept. 13, or describe entire economic sectors, such as the ''Pilgrim Regional Bankshares Fund,'' closed-end funds tend to be overlooked by investors. Yet, in terms of return on investment and profits over time, they can be moneymakers. ''This has been and continues to be a very good year for closed-end funds,'' says Patrick Winton, editor of the Closed-End Fund Digest and Real Estate Securities, a monthly newsletter published in Santa Barbara, Calif. ''We have four model portfolios for closed-end funds, and all are up this year,'' Mr. Winton says. The balanced portfolio for equities is up 11 percent this year. The global growth portfolio is up 13.2 percent. The taxable income portfolio is up 12.4 percent. And the tax-free portfolio is up 14.5 percent. Although all these lag behind the Standard & Poor's 500 stock index, which is up around 25 percent this year, fans of closed-end funds say a slightly slower pace isn't as important as it may seem. And the reason, they say, is the nature of closed-end funds. Similar to publicly traded stocks Closed-end funds have characteristics of both mutual funds and publicly-traded stocks. A closed-end fund trades in the open market exactly the way shares of publicly traded companies do. That means, says Thomas J. Herzfeld, who heads up Thomas J. Herzfeld Advisors Inc., a brokerage-consulting firm in Miami, that savvy investors can profit by buying shares of closed-end funds at a discount to their net asset value and selling them at a premium. Compare this with a typical open-ended mutual fund, which is continually offering new shares. The purchase price of the fund's share is based on the net asset value of all securities in the fund. That means, Mr. Herzfeld says, that the purchase price is based on the total net assets of the fund divided by the number of outstanding shares, plus, in the case of load funds, a sales charge. No-load funds do not have a sales charge, and thus, shares are bought or redeemed at their net asset value. Closed-end funds, however, do not continually issue new shares. The fund issues a fixed number of shares and then invests the proceeds in various securities, such as stocks or bonds. Nor are the shares sold or redeemed by the mutual-fund company. Rather, the funds are listed on a stock exchange, mainly the New York Stock Exchange. The price at which the funds are sold reflects market sentiment about the fund. Many closed-end fund investors tend to be short-term traders, rather than long-term investors. They buy a fund when it is trading at a deep discount to its net asset value. If the discount shrinks, say from 15 percent to 5 percent, they sell it. If the discount again widens, they may buy it back. Some investors like deeply discounted closed-end funds because they may offer a higher dividend yield on their portfolio. ''When you buy into a regular mutual fund, you generally pay what the per share price was at the close of trading on the previous day of business. When you buy into a closed-end fund, you pay what the market sentiment is telling you about that fund on that specific day of trading,'' says John Collins, a spokesman for the Investment Company Institute, the trade group for the mutual-fund industry in Washington. He describes closed-end funds as ''cousins'' of the mutual-fund industry. There are some 500 closed-end funds operating in the United States today, with total assets in excess of $100 billion. But the glory days of closed-end funds were back in the 1920s. When the stock market crashed on Oct. 24, 1929, closed-end funds were among the hardest hit of all listed stocks, Herzfeld says. Investors did not forget. In recent years, however, the funds have regained some popularity, particularly among investors seeking to buy into overseas stocks. Many closed-end funds specialize in specific countries, such as Germany, Japan, and Korea. The hottest sectors among the closed-end funds this year have been those invested in financial-industry firms and those in health-care stocks, says Michael Stout, who tracks closed-end funds at Morningstar Inc., a Chicago based financial services firm. (See box.) Morningstar monitors about 360 closed-end funds in its bimonthly newsletter, Morningstar Closed-End Funds. Some technology-linked funds continue to do well, but the sector itself has been slowing, Mr. Stout says. Keep an eye on the market A person investing in closed-end funds must remain very alert to market sentiment, Winton says. Last year, for example, closed-end funds were down, along with the market in general. But many single-country funds took an added hit with the negative fallout from Mexico, following that country's devaluation of its peso, notes Winton. Bond funds also require scrutiny, since fund managers have been known to inflate yields by using such strategies as paying out capital as well as interest earned. Another way that investors have been burned is when they have purchased new issues of funds, Herzfeld says. Typically, when new funds are issued, within a day or so the trading price drops below the initial-offering price. Part of the reason is that offering prices include commission charges that can be as high as 10 percent. Many experts say an investor should never buy a new issue of a closed-end fund. Rather, they should wait for the fund to drop to a discount. In some cases, smaller closed-end funds may be subject to relatively high management fees. These fees are always deducted before a fund pays its investors their return. Closed-end funds are available for purchase through a full-service or discount broker. You will have to pay a brokerage fee that will reduce your earnings.