Discount To Net Asset Value

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".

BREAKING DOWN '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

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