Discount to NAV: definition, calculation & why it happens
A discount to NAV occurs when a fund or private company’s shares trade or transact below its calculated net asset value. The opposite — trading above NAV — is called a premium to NAV. Both are common in closed-end funds and private secondary markets, where a share’s price is set by supply and demand rather than by continuous creation and redemption.
Discounts and premiums are a signal worth paying attention to, since they reveal something about how the market feels about a fund’s holdings, manager, or liquidity that the NAV number alone doesn’t capture.
What is a discount to NAV?
If a fund’s NAV per share is $10 but shares are trading, or being offered on a secondary market, at $9, that’s a 10% discount to NAV. Discounts often reflect illiquidity, uncertainty about the accuracy of the underlying valuation, or reduced investor demand relative to the fund’s stated asset value.
Example: A private fund holding shares in several late-stage startups reports a NAV of $12 per unit. On a secondary marketplace, buyers are only willing to pay $10.20 per unit, a roughly 15% discount, reflecting both illiquidity and skepticism about whether the fund’s private holdings are marked accurately.
Discount to NAV calculation
Discount to NAV (%) = (NAV per share − Trading Price) ÷ NAV per share
A positive result is a discount; a negative result means the shares are trading at a premium to NAV. Using the example above: ($12 − $10.20) ÷ $12 = 15% discount.
Why discounts and premiums happen
- Illiquidity: Private and closed-end fund shares can’t be sold as easily as public stock, so buyers often demand a discount to compensate for that friction.
- Valuation lag: Private company NAVs are updated periodically, not in real time, so buyers may price in expected changes, positive or negative, before the official NAV catches up.
- Sentiment: Strong investor demand for a specific company or fund can push secondary prices to a premium, especially around high-profile companies.
Final thoughts
A discount or premium to NAV is ultimately a market opinion layered on top of an accounting figure. Neither the NAV nor the trading price is automatically “correct” — together, they tell you both what a fund says it’s worth and what buyers are actually willing to pay for it right now.
Want to keep learning? Explore Augment’s network, see what’s new in Collective, browse The Power 20, and keep up with the private market with the Pulse.
Disclaimer
This content is for informational and educational purposes only. It does not constitute investment advice, legal advice, or a recommendation to buy or sell any security or to pursue any specific investment strategy.
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Paul leads editorial at Augment, building Pulse into the private markets' go-to intelligence source. He also develops editorial content strategies for startups and venture capital firms. Previously, he spent 15 years as a business and opinion journalist at The New York Times, Fortune, Fast Company, Reuters, and more. He believes transparency creates liquidity—and that someone should actually publish what private shares are trading for. He lives in Marin with his wife and two rescue dogs, and wishes he had more time to surf.
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