Premium To Net Asset Value


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.

BREAKING DOWN '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.

  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. Net Asset Value Per Share - NAVPS

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

    A type of mutual fund that does not have restrictions on the ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. Closed-End Fund

    A closed-end fund is a publicly traded investment company that ...
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