NAV stands for Net Asset Value, calculated as the total value of the fund's assets minus liabilities, divided by the number of outstanding shares. A discount to NAV occurs when the fund's market price per share is lower than its NAV per share; it is commonly expressed as a percentage of NAV.
Investors monitor the discount or premium to NAV for closed-end funds to gauge how the market prices the fund relative to its assets. The size and direction of the discount reflect supply and demand in the fund's trading market, liquidity, and investor sentiment. Discounts can fluctuate daily and may persist for extended periods. Some funds implement measures such as share repurchase programs or distribution policies in an attempt to influence the discount, but such actions do not guarantee a change in the pricing relationship.
Discounts to NAV are a characteristic more associated with closed-end funds rather than open-end funds or most exchange-traded funds, which typically trade near or at NAV.
A closed-end fund has a NAV per share of $10 but trades on the market at $9, which represents a 10% discount to NAV.
Net Asset Value (NAV) · Premium to NAV · Closed-end fund · Open-end fund · Market price · Net asset value per share