Closed-ends funds, just as mutual funds have Net Asset Value (NAV), which is the net value of the fund's holdings (assets less liabilities) divided by the number of shares outstanding. Basically, if the fund's holdings were liquidated, this is how much of cash would be available for each share (less transaction costs).

Closed-end funds are subject to the laws of supply and demand. Therefore, their market value fluctuates, so not only the NAV will affect the market price of shares, but also investors' sentiments.

As a result, a price an investor pays to purchase shares of a closed-end fund can be above or below its NAV. If the shares are traded below the NAV, the fund is said to trade at a discount. On the other hand, if shares are traded above its NAV, then a fund is selling at a premium.

Some investors seek out closed-end funds that trade below their NAVs in expectations of the market price catching up with the NAV. 



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How Are Closed-end Funds Valued?


Closed-end fund valuation is based on NAV, as with mutual funds, but actual price is based on market action, as with stocks. In that sense, it is a hybrid pricing.

The price of a closed-end fund will often be different from its NAV value