# Understanding NAV Return: Definition, Calculation, & Comparison to Market Return

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> **Definition**
>
> NAV return is a change in the estimated net market value of a fund's assets in a given period.

## What Is NAV Return?

NAV return shows how much a mutual fund or ETF gains or loses based on its net asset value (NAV). Unlike market return, a fund's NAV return focuses on the value of the underlying assets. The differences between NAV and market prices can happen due to premiums or discounts, affecting what investors actually pay or receive. Understanding NAV return helps investors see how well a fund is performing and make better decisions when buying or selling shares.

### Key Takeaways

*   NAV return measures a fund's performance by looking at changes in net asset value, not market prices.  
    
*   Closed-end funds often trade at a premium or discount to their NAV, unlike mutual funds.  
    
*   ETFs typically trade close to their NAV due to the creation and redemption of shares.  
    
*   Distributions to shareholders can cause variations between NAV and total returns.  
    
*   The NAV is calculated daily, reflecting fluctuations in assets' market value.

## Exploring NAV Returns: How They Work and Impact Investments 

The NAV return is calculated based on the fund's NAV reported after the stock market closes each trading day. The NAV is the total assets minus total liabilities divided by the outstanding shares. The value changes daily as assets fluctuate based on market value. The NAV return is a transparent accounting measure that [reports the actual holdings](https://www.investopedia.com/ask/answers/091715/how-often-do-mutual-funds-report-their-holdings.asp) in the fund at the end of the day. Therefore, dividends, interest, and capital gains distributed to shareholders are not included in the total assets unless reinvested.

The total return of a mutual fund includes distributions to shareholders, whether reinvested or not. This is the main reason for the difference between NAV and total return.

Funds like closed-end funds and ETFs trade in real time and can be priced at a premium or discount, affecting market and NAV returns. They usually trade close to their NAV, but if they stray too far, authorized participants may step in to correct the price.

## Analyzing Closed-End Funds: NAV Returns and Real-World Examples

Fund managers provide NAV returns and other measures of returns, which investors monitor to track their performance. As we've noted, mutual funds and ETFs have price and NAV returns that should closely match. For example, the Vanguard Total Stock Market Index Fund (VTSAX), an open-end mutual fund that tracks the entire U.S. stock market, is designed to trade at precisely the NAV. Changes in investor demand shouldn't cause too much of a deviation since the fund manager creates or redeems shares to meet it exactly.

Closed-end funds ([CEFs](https://www.investopedia.com/terms/c/closed-endinvestment.asp)) [often trade](https://www.investopedia.com/ask/answers/145.asp) at a premium or discount to their NAV. The Investment Company Institute's 2023 report shows that these discounts have widened recently. In 2022, CEFs averaged discounts of 5.7% for equity funds and 5.0% for bond funds.

As of April 25, 2024, the Eaton Vance Tax-Managed Buy-Write Income (ETB) fund was priced at $13.19, below its NAV of $14.49. Its price rose by 7.51% in 2023, but its NAV return was 17.64%  

The Guggenheim Strategic Opportunities Fund (GOF) was an outlier among CEFs, trading at a 20.93% premium as of April 25, 2024. Its market price was $14.33, exceeding the NAV of $11.85. This premium shows that investors are willing to pay more than the value of the underlying assets per share.

GOF's premium could derive from investor optimism about the future returns of the fund’s assets: its mix of fixed-income securities, equity, and preferred stock. The stock also has a more-than-a-decade-long history of monthly distributions of $0.1821 to shareholders (and slightly lower for years before that).

But there could be reasons specific to the fund. A CEF that focuses on high-return securities, often inaccessible to retail investors, might trade at a premium due to high demand. In contrast, a CEF with many unrealized capital gains might trade at a discount due to potential tax impacts.

[Fund managers](https://www.investopedia.com/terms/c/closedendmanagementcompany.asp) can reduce discounts by boosting market visibility with reports and marketing. Closed-end funds might also offer dividend reinvestment plans, tender offers, or stock purchase programs. Some may even convert to open-end funds or ETFs, allowing shares to be redeemed at NAV.

While ETFs usually trade close to their NAV due to share creation and redemption, CEFs like ETB and GOF can have larger gaps between NAV and price.  

## Why Might a Fund's NAV Be Higher or Lower Than Its Market Price?

The NAV for a fund may vary from its market price if the supply of shares in the fund is too high or low compared with demand for shares. If there are too few shares, but significant demand, the share price may rise above NAV.

## Do Mutual Funds Ever Trade Above or Below NAV?

No. Because mutual fund shares are bought and sold directly with the fund provider, the shares always trade at NAV. There is no [bid/ask spread](https://www.investopedia.com/terms/b/bid-askspread.asp) or opportunity to buy or sell shares above or below NAV.

## Should You Buy a Fund That's Trading Above Its NAV?

Buying a fund that's trading above NAV may be a good idea, but trading above NAV isn't a reason to buy the fund on its own. It could indicate investor confidence in the portfolio or high demand for the shares, but it's important to consider your investment goals and the market risk of it going the wrong way on you before investing.

## The Bottom Line

NAV return measures a fund’s change in net asset value. It shows how its underlying assets perform, which is different from market returns that reflect the trading price of shares. NAV is important for mutual funds and ETFs because it aligns closely with the share price. In some cases (as in closed-end funds), shares may trade at a premium or discount due to high demand or market optimism. Understanding factors like supply, demand, and investor confidence can help explain these differences. You can make more informed decisions and better understand your investment options by looking at NAV returns along with total and market returns.

> **Article Sources**
>
> 1.  S.K. Parameswaran. "[Fundamentals of Financial Instruments: An Introduction to Stocks, Bonds, Foreign Exchange,and Derivatives](https://onlinelibrary.wiley.com/doi/book/10.1002/9781119816621)," Pages 433–436. John Wiley & Sons, 2022.
>     
> 2.  S.K. Parameswaran. "[Fundamentals of Financial Instruments: An Introduction to Stocks, Bonds, Foreign Exchange,and Derivatives](https://onlinelibrary.wiley.com/doi/book/10.1002/9781119816621)," Pages 455–458. John Wiley & Sons, 2022.
>     
> 3.  Investment Company Institute. "[US Closed-End Funds (2023)](https://www.ici.org/research/stats/closedend)," p. 69.
>     
> 4.  CEF Connect. "[ETB](https://www.cefconnect.com/fund/ETB)."
>     
> 5.  Investment Company Institute. "[A Guide to Closed-End Funds](https://www.ici.org/cef/background/bro_g2_ce)."
>     
> 6.  Ed Moisson. “[The Economics of Fund Management](https://www.cambridge.org/core/books/economics-of-fund-management/BDC003722BE6B045A76F73B6E9676B17),” Pages 141–153. Agenda Press, 2024.
>     
> 7.  Financial Industry Regulatory Authority. "[Opening Up About Closed-End Funds](https://www.finra.org/investors/insights/opening-up-closed-end-funds)."
>     
> 8.  Charles Schwab. "[Mutual Funds vs. ETFs](https://www.schwab.com/etfs/mutual-funds-vs-etfs)." Accessed Apr. 23, 2024.