Why do closed-end funds trade at discounts?

Advisor Insight. Because closed-end funds trade on a public exchange, the price of the units will be determined by the market. As such, at any point in time the price may trade at either a premium or discount to the stated NAV. Over the longer term, the share price and the NAV should converge.

Why would a fund trade at a discount to NAV?

Profiting from a Discount to Net Asset Value A fund trading at a discount to NAV offers an opportunity to profit. If a discount does occur, investors can profit from the discounted price and also gain yield benefits from a lower price on income paying securities.

What is close end fund discount?

Closed-end funds often trade at a discount to their net asset values (NAV). However, during the recent market sell off this discount has increased in many cases. For many funds the number of shares exceeds demand, and so the fund trades at a discount. For other funds, they can sometimes trade at a premium to NAV.

Why can closed-end funds sell at prices that differ from net value?

Why can closed-end funds sell at prices that differ from net value while open-end funds do not? Close-end funds trade on the open market and are thus subject to market pricing. Its portfolio is fixed and does not change due to asset trades, as does a close-end fund.

Do closed-end mutual funds trade at NAV?

Its pricing is one of the unique characteristics of a closed-end fund. The NAV of the fund is calculated regularly, based on the value of the assets in the fund. However, the price that it trades for on the exchange is market-driven. This means that a closed-end fund can trade at a premium or a discount to its NAV.

What does it mean to trade at a discount?

“At a discount” is a phrase used to describe the practice of selling stocks, or other securities, below their current market value. Companies make it is possible for employees with certain stock options to purchase shares at a discount, if they were granted the options early enough.

What is a closet-end fund and how does it work?

Closed-end funds may trade at a discount (or premium) to their NAV and are subject to the market fluctuations of their underlying investments. Shares of closed-end funds frequently trade at a market price that is a discount to their NAV. Closed-end funds are subject to management fees and other expenses.

How do closed-end funds affect the price of shares?

Because closed-end funds are traded on a public stock exchange, the price of the shares will be determined by the market. As such, the share price at any point in time will likely trade at either a premium or discount to the stated NAV. Over the longer term, the share price and the NAV should converge.

Why do closed-end funds always trade at a premium to Nav?

Because closed-end funds trade on a public exchange, the price of the units will be determined by the market. As such, at any point in time the price may trade at either a premium or discount to the stated NAV. Over the longer term, the share price and the NAV should converge. There are many times when closed-end funds trade…

How are closed-end funds (CEFs) priced?

When you buy a closed-end fund, you are buying it from another participant in the marketplace; the price is determined purely through supply and demand. It gives rise to a unique feature of CEFs where they can trade at a premium or a discount to Net Asset Value (NAV), which is one of the features I discuss in more detail below.