Premium To Net Asset Value

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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.

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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 >>
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    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
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    The Securities and Exchange Commission (SEC) may take action to impose greater regulation on how 12b-1 fees are used, or ... Read Full Answer >>
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    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 >>
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