Investors are looking for passive income wherever they can find it. It's a whole lot easier to collect a quarterly check from a dividend-paying stock than it is to find a second job or take on gig work. And for many investors, the higher the yield on a passive income investment, the more they like it.

Recently, closed-end funds have gotten a lot of hype because of their high distribution yields. However, there are several things every investor considering these passive income favorites needs to know about closed-end funds before buying shares. Here are those hidden secrets.

Closed-end funds are allowed to make distributions from three sources: dividends and interest they receive on the investments they hold, capital gains on the investments they sell, and return of investor capital. Unfortunately, it's often this third category that pushes a closed-end fund's yield to attractive levels -- and all that means is that you're paying management fees to get your own money back.

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Source Fool.com