Discount To Net Asset Value

AAA

DEFINITION of 'Discount To Net Asset Value'

A pricing situation that occurs with a closed-end mutual fund when its market price is currently lower than the net asset value of its components. Discounts can occur in times where the market has a pessimistic future outlook and fund investors have started to sell their holdings.

Also known as "discount to NAV".

INVESTOPEDIA EXPLAINS 'Discount To Net Asset Value'

This phenomenon only occurs in closed-end funds. Open-end funds, on the other hand, are not as affected by supply and demand because they are bought and sold at prevailing net asset values.

While a discount NAV could be an indication that the underlying assets in a fund will dip in value, it could also be a temporary market over-reaction. Moreover, the fund manager may decide to buy back shares of the fund to remove the discount and restore the fund's value back to its net asset value

RELATED TERMS
  1. Asset Value Per Share

    The total value of a fund's investments divided by its number ...
  2. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  3. Closed Fund

    A mutual fund that has been closed - either temporarily or permanently ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  5. Net Asset Value Per Share - NAVPS

    An expression for net asset value that represents a fund's (mutual, ...
  6. Open-End Fund

    A type of mutual fund that does not have restrictions on the ...
RELATED FAQS
  1. What is a mutual fund's NAV?

    Net asset value (NAV) represents a fund's per share market value. This is the price at which investors buy ("bid price") ... Read Full Answer >>
  2. Why do some closed-end mutual funds trade above or below their net asset values?

    Intuition tells us that a mutual fund's net asset value (NAV) (the net value of all assets within the mutual fund's portfolio ... Read Full Answer >>
  3. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
  4. What action is the SEC likely to take on 12b-1 fees?

    The Securities and Exchange Commission (SEC) may take action to impose greater regulation on how 12b-1 fees are used, or ... Read Full Answer >>
  5. What is considered a reasonable 12b-1 fee?

    A reasonable 12b-1 fee is generally considered to be 0.25% of the assets of the mutual fund. The maximum amount allowed for ... Read Full Answer >>
  6. What are some of the most common mutual funds that give exposure to the retail sector?

    There are a number of mutual funds that give exposure to the retail sector. Three of the most popular funds are the Fidelity ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Open Your Eyes To Closed-End Funds

    Although less popular than their open-ended counterparts, these investment vehicles are worth a second look.
  2. Markets

    Valuing A Stock With Supernormal Dividend Growth Rates

    If these calculations are off, it could drastically change the value of the shares.
  3. Investing Basics

    Shareholders: Vote Your Proxy and Be Heard

    Voting shares, in person or via proxy ballot, is a right every shareholder should exercise. Here's why.
  4. Fundamental Analysis

    Calculating Tracking Error

    Tracking error is the difference between the return on a portfolio or fund, and the benchmark it is expected to mirror (or track).
  5. Investing Basics

    What is the Shadow Banking System?

    The shadow banking system is composed of financial institutions that do not take deposits in the tradition sense.
  6. Investing Basics

    What's a Benchmark?

    A benchmark is a standard investors choose to gauge the performance of their portfolios.
  7. Professionals

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  8. Mutual Funds & ETFs

    Looking To Invest In Texas? Here Is How

    Ranging from energy to household names, here are some of the top investment opportunities in Texas.
  9. Investing Basics

    What Does a Financial Intermediary Do?

    A financial intermediary is an institution that acts as a go-between in a financial transaction.
  10. Mutual Funds & ETFs

    4 Ways You Can Invest In Gold Without Holding It

    Owning gold can be a store of value and a hedge against unexpected inflation. Holding physical gold, however, can be cumbersome and costly. Fortunately, there are several ways to own gold without ...

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!