Because closed-end funds trade on a stock exchange, the price they are bought and sold at is not NAV, it is whatever the going market price of their stock is. This price is determined by an interaction of buyers and sellers. Lack of advertising, research, and general investor interest along with investor sentiment issues are probably the biggest reasons behind why some closed-end funds trade at discounts to their underlying portfolio values. Investor sentiment for the particular sector of investment style of a closed-end fund can also push a fund to a discount or premium. If investors believe that a fund's investment objective is likely to underperform others or decline significantly, they may be willing to sell the fund at a deep discount to avoid larger future losses.
Discounts benefit the investor on a yield basis, and possibly on the capital gain side.
A discount is simply another way of saying that you can buy a dollar's worth of assets for something less. The cash flow coming off the closed-end portfolio is based on its NAV, not what the market price is. Investors attempting to get the same yield from products at NAV will have to increase their implicit investment risk by using longer maturities or lower credit quality, or by using other methods such as leverage or derivatives. In conclusion, a closed-end's structure offer several features that allow investors to enhance yield. The fixed asset base allows managers to be fully invested as well as adopt measures such as leveraging to maximize the yield.