Let’s talk about closed funds. First, why do funds close? Second, what does it mean for you when a fund closes? Finally, what can, or should you do about it?

Mutual funds often close because fund managers are limited in how much cash they can handle. And sometimes their success actually hurts them, as investors, excited by a hot streak, pour boatloads of money into a fund in a short period of time.

When that happens and a manager can’t find good places to invest the cash, the fund closes.

Vanguard has often closed funds after strong track records have prompted investors to start shoveling money into a hot fund.

Some funds only close to new investors. That means if you had an account in the fund when it closed, you can keep putting money into it. Other funds may simply set their investment minimums high enough to keep the bulk of new investors out. And then some funds close completely. That means that even existing investors are prevented from adding money to a fund.

If a fund closes its doors to you, you have three options:

1. Wait until the fund reopens.
2. Find a loophole and get in the back door.
3. Find a clone that performs similarly. Generally, I look for clone funds run by the same manager.

In the past year, Vanguard has reopened several of its top-performing closed funds to investors in its Flagship program, meaning they are kind of open, but not entirely. And a series of well-known value investing shops, from Tweedy Browne and Dodge & Cox, to Southeastern Asset Management and Third Avenue, reopened their own closed funds after the markets took a 15% drop from their previous highs.

I mentioned a back door, which works when you don’t know if a closed fund will ever reopen.

The idea is to have an existing shareholder transfer shares into your name so that the fund company must open an account for you. It’s the same thing as if someone transferred shares of IBM or Google into your name.

At Vanguard, the form you want is the Change of Ownership form—most fund companies have one. Then find a trusted friend who is a shareholder in the fund. In the old days all it took was one single share to open a new account. Now, even transferred accounts have to meet the fund’s minimum.

Give your friend enough money to meet the fund's account minimum and ask them to invest it in their account. Once it's invested, they can transfer the appropriate number of shares of the fund to you. Not all funds will allow this, and you might have to sort through a lot of rules, but it can work—a number of my subscribers have reported success with doing this at Vanguard over the years.

If all else fails, look for a clone of the closed fund. For example, Vanguard Capital Opportunity (VHCOX), run by PRIMECAP Management, is one of my favorite funds. It closed in 2004. But PRIMECAP also manages three of its own funds, the PRIMECAP Odyssey funds. PRIMECAP Odyssey Aggressive Growth is a close match to Capital Opportunity. In fact, I expect it to outperform in the long term, due to its smaller size.