An investment fund pools investors’ money together to purchase investments, such as stocks and bonds. Shares in certain types of funds, such as closed-end funds and exchange-traded funds, trade on stock exchanges. These share prices are based on supply and demand and can differ from their net asset value, which is the per-share value of the fund’s underlying investment portfolio. A share price as a percentage of NAV measures the extent of the shares’ discount or premium to NAV. If the percentage is greater than 100, shares sell at a premium to NAV. If the percentage is less than 100, they sell at a discount.
Find a fund’s current share price and NAV on any financial website that provides fund quotes or from your broker.Step 2
Divide the fund’s share price by its NAV. For example, assume a closed-end fund has a $10 share price and an $11 NAV. Divide $10 by $11 to get 0.91.Step 3
Multiply your result by 100 to determine the share price as a percentage of NAV. In this example, multiply 0.91 by 100 to get 91 percent. This means shares sell for 91 percent of NAV, which is at a discount to NAV.Step 4
Subtract the percentage from 100 percent. Figure the absolute value of your result to determine the percentage of the discount or premium. Continuing the previous example, subtract 91 percent from 100 percent to get 9 percent, the absolute value of which is also 9 percent. This means shares sell at a 9 percent discount to NAV. Using a different example, assume a fund’s share price is 105 percent of NAV. Subtract 105 from 100 to get negative 5 percent, or an absolute value of 5 percent. This means shares sell at a 5 percent premium to NAV.
- The premium or discount on a closed-end fund is typically larger than on an exchange-traded fund. An ETF is structured so that trades by institutional investors help keep share prices close to NAV.