What’s NAV Premium

In the context of mutual funds or exchange-traded funds (ETFs), “NAV premium” refers to a situation where the market price of the fund’s shares is higher than its Net Asset Value (NAV) per share. The Net Asset Value is essentially the total value of the fund’s assets minus its liabilities, divided by the number of shares outstanding.

• Trading at a premium means investors are willing to pay more for the fund’s shares than the official per-share value of its underlying holdings.

• Trading at a discount is the opposite situation, where investors can buy shares at a lower price than their NAV.

For ETFs, this premium (or discount) usually stays small because market makers can quickly create or redeem shares to keep the ETF’s price close to its NAV. For closed-end funds (CEFs), on the other hand, premiums and discounts can persist for longer periods, because CEFs issue a fixed number of shares that trade more like common stock, and there’s no mechanism for continuous creation or redemption of shares to arbitrage away the difference.

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NAV Premium refers to the percentage by which the price of a fund’s share (like an exchange-traded fund (ETF) or a closed-end fund) is trading above its Net Asset Value (NAV).

Key Points:

1. Net Asset Value (NAV): This is the total value of a fund’s assets minus its liabilities, divided by the number of shares outstanding. Essentially, it reflects the value of the fund’s underlying holdings.

2. Premium: If the market price of the fund’s shares is higher than its NAV, the difference is called the premium. It means investors are willing to pay more than the actual value of the underlying assets.

3. Calculation:

4. Example:

• NAV = $100

• Market Price = $105

• Premium =

5. Relevance:

• A premium often suggests strong investor demand or positive sentiment about the fund.

• It can also occur if the fund holds illiquid or hard-to-value assets that investors perceive as more valuable than their NAV suggests.

Related Concept:

• NAV Discount: The opposite of a premium, where the market price is below the NAV.

NAV Premium is commonly observed in closed-end funds and some ETFs.