The calculation formula of closed-end fund discount rate is: closed-end fund discount rate = (secondary market price-net fund share) ÷ net fund share × 100%. When the discount rate of closed-end funds is greater than zero, it is a discount, and when the discount rate of closed-end funds is less than zero, it is a premium.
Because closed-end funds are listed on the exchange, their buying and selling prices are greatly influenced by the relationship between market supply and demand. When the market supply is less than the demand, the buying and selling price of fund shares may be higher than the net asset value of each fund share, and then the fund assets owned by investors will increase, that is, a premium will be generated; When the market supply exceeds demand, the fund price may be lower than the net asset value of each fund unit, which means discount. The discount rate of closed-end funds is still high, mostly between 20% and 40%, and the discount rate of small and medium-sized funds with short term is low. It is certainly better to buy the same fund when the discount rate is high; However, the choice of funds should not only look at the discount rate, but also choose some small and medium-sized funds with moderate discount rate and short term.
According to the experience at home and abroad, it is normal for closed-end funds to discount their trading prices. Discount will affect the investment value of closed-end funds. In addition to investment objectives and management level, discount rate is an important factor in evaluating closed-end funds, and investors with high discount rate have certain investment opportunities.
Because closed-end funds should be paid or liquidated according to their net value after the operation expires, the higher the discount rate, the greater the potential investment value.
Western academic circles have the following tenable market hypothesis views on closed-end fund discount. Let's take a look at them together.
1. Unrealized capital gains may lead to tax burden, and future fund gains are taxable, so investors will compensate for the potential losses of fund discount.
2. Agency cost hypothesis, agency cost can not be ignored, because closed-end funds are traded in the secondary market through brokers, and this agency cost will be deducted from the price of closed-end funds.
3. Lack of liquidity theory, the liquidity of funds, stocks and other assets that make up a fund may be unequal, which makes the base price deviate from the net asset value.
4. Market segmentation hypothesis, the correlation between financial markets is limited, so one-price pricing is not applicable. Homogeneous goods shall not be priced at the same price.
5. Performance expectation theory, investors have their own understanding of the management ability of fund managers. Excellence brings good expectations, and good expectations bring premium.