Premium To Net Asset Value

AAA

DEFINITION of 'Premium To Net Asset Value'

A pricing situation that occurs when the stock value of a closed-end mutual fund is trading at a premium to the net asset value (NAV) of its components. The premium arises from the optimistic sentiment of investors toward the fund, which may be due to excellent management and investment strategies.

INVESTOPEDIA EXPLAINS 'Premium To Net Asset Value'

Only closed-end funds can trade at premiums or discounts to their net asset values. Open-end mutual funds are not affected by supply and demand because they are purchased and sold at their current NAVs.

Because premiums are fueled by investor opinions, popular funds with successful past performances will be favorably valued. Similarly, new closed-end funds can often begin trading at a premium due to market optimism and hype. The premium represents the market's belief that the fund managers' continual ability to produce excess returns is a result of their superior market timing and stock selections.

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. Open-End Fund

    A type of mutual fund that does not have restrictions on the ...
  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. Closed-End Fund

    A closed-end fund is a publicly traded investment company that ...
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") ...
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. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  3. Mutual Funds & ETFs

    An Introduction To Closed-End Mutual Funds

    If you're looking to generate income for your investments, look no further.
  4. Investing

    Active Funds: Getting What You Are Paying For?

    Fund investing could have hidden costs that can potentially make a big impact on your final return, particularly over the long-term.
  5. Brokers

    OptionsXpress Vs. OptionsHouse: Which One To Pick?

    OptionsXpress and OptionsBroker -- each offers a price mix and set of services suitable for certain investors based on their trade approach and priorities.
  6. Investing Basics

    This Investment Strategy Could Be Your key To Success

    Goal-based investing seems like an obvious tactic. But many investors have only a vague idea what their goals are, much less how to achieve them.
  7. Economics

    Gary Gordon Positions Your Portfolio For 2015

    Seeking Alpha, the popular financial web portal, interviews Gary Gordon for its Positioning for 2015 series. Here is a transcript of that exchange.
  8. Professionals

    A Look At Pimco's Total Return Fund Post-Gross

    Pimco has stabilized its Total Return fund, but its returns are still shaky and its sales load is still a fat one.
  9. Professionals

    10 Equity Mutual Fund Bargains

    10 equity mutual funds bargains for any investor or financial advisor.
  10. Chart Advisor

    A Total Stock Market ETF For Any Portfolio

    Utilizing index funds and ETFs, such as Vanguard's VTI, is one of the best ways for the average investor to track the broad markets and minimize fees.

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center