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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Collective Investment Vehicles

A close-ended fund has an NAV of ₹48 per unit and its units trade on the exchange at ₹42. What is the discount to NAV, and what does it indicate?

The units trade at a 12.5% discount to NAV, calculated as (48 − 42) divided by the NAV of 48. Market price is below NAV. Using the market price as the base, which gives 14.3%, is the wrong denominator.

  1. A12.5% discount; market price is below NAVCorrect
  2. B14.3% discount; market price is below NAV
  3. C12.5% premium; market price is above NAV
  4. D14.3% premium; market price is above NAV

Explanation

Discount = (48 − 42) / 48 = 6/48 = 12.5%, using NAV as the base. Check: 48 × 0.875 = 42. The 14.3% figure results from wrongly dividing by the market price (6/42).

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