ETF Premiums and Discounts: Why Price Can Differ from NAV

An exchange-traded fund has a market price and a net asset value, or NAV, per share. Those figures describe different things. Before calling an ETF cheap or expensive, establish whether you mean its trading price relative to NAV or the merits of the investments it owns.

What does NAV measure?

Investor.gov explains that NAV per share is the value of the fund's assets minus liabilities, divided by the number of shares. ETFs calculate it each business day. It measures the investment portfolio rather than promising the price of your own trade.

Retail investors generally buy and sell ETF shares on an exchange at market prices throughout the day. Demand for the ETF and prices of its underlying holdings can move that market price away from the fund's NAV.

What are a premium and a discount?

Shares trading above NAV are at a premium. Shares trading below NAV are at a discount. The difference can change over time, so a historical discount is not a promise that the same condition applies to your order.

The SEC describes a creation-and-redemption structure involving authorized participants that generally helps keep prices close to NAV. Close does not mean identical. A discount also does not, by itself, establish that the investment is a bargain or suitable for your goal.

Where can you check the difference?

The SEC points investors to the ETF's website and prospectus for historical premium-and-discount information. Its website may also show NAV, the closing market price and the median bid-ask spread. Check the dates and definitions before comparing the figures.

Read the investment objective, holdings, risks and fees alongside trading data. These are separate parts of the decision. An ETF can lose value even if you bought it at a discount, and trading costs can further reduce returns.

Frequently asked questions

Is NAV the price my brokerage must give me? No. Retail ETF trades occur at market prices.

Does a discount guarantee a profit? No. It describes a price comparison, not the future performance of the ETF or its holdings.

Sources and further reading: Investor.gov, Exchange-Traded Funds (https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-24).