The prices of investment trust and investment company shares are determined in the stock market, just like any other share. This can mean that the share price stands below the share’s net asset value (NAV), ie the actual value of the assets underlying the shares.
In other words the total value of the shares owned by the investment trust after deducting the gearing is typically greater than the total value of the investment trust itself as measured by its capitalisation (ie the number of the investment trusts’ shares issued x the share price). This shortfall, known as the discount, is expressed as a percentage of NAV and is regularly shown in investment trust price listings. A few investment trusts are in the opposite position and show a surplus over net assets known as a premium.
One advantage of the discount, is that it can boost the dividend yield from the underlying shares. A possible drawback is that the discount can sometimes widen and increase the potential losses by more than the reduction in the value of the underlying shares.Last Updated
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Investment trusts and investment companies
04: Prices, discounts and premiums
The value of your investments - and the income from them - can fluctuate and it is possible that you might not get back a significant amount of your investment. Past performance is not a guide to future performance and may not be repeated.
