Excess Supply . The introduction of new funds investing in the same markets tends to increase discounts since these new funds draw away money that would otherwise have been committed to the older funds. For example, the introduction of three new funds focusing on India led to a sharp drop in the premium of the older India Growth fund , and eventually to large discounts on the new funds. Rights Offerings, Secondary Offerings, or Distributions . Of late, many CEFs have resorted to rights offerings to draw additional money into their coffers.
Secondary offerings are less frequent, and typically are used by CEFs trading at a premium.
Many CEFs encourage investors to re-invest dividend and capital gains distributions through attractive dividend reinvestment plans. For example, secondary offerings are usually priced lower than the current market price to attract investors. Since shares are available at lower prices, the premium drops. Often, it takes a while for the premium to recover, if it does, since most investors wishing to invest would have done so during the offering. Open-Ending or Takeover .