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How to Determine a Discount for Closed End Mutual Fund Source Capital?

Original post by Leslie McClintock of Demand Media

Source Capital, the mutual fund managed and marketed by First Pacific Advisors, is a closed-end fund, rather than a traditional open-end mutual fund. This means that the fund consists of a fixed pool of capital and shares are bought and sold via the stock exchange throughout the day, just like stocks. The market, not the fund company, determines the price of shares. Sometimes, the per share price of a closed end fund is very different from the underlying value of the investments. When shares are trading at a price below the net asset value of the investments in the portfolio, they are said to be trading at a discount. When the fund shares are higher than the underlying investment would suggest, they are trading at a premium.

Closed End Fund Association

Log onto the Closed-End Fund Association's web site at www.closed-endfunds.com. The Closed-End Fund Association is a trade association formed to promote the sale and marketing of closed end funds as an investment alternative, competing for capital with traditional mutual funds, stocks, and annuities.


Enter the fund's ticker symbol in the search box in the upper left hand corner. Every security has a unique letter identifier that can be used as a shorthand when looking up market data. In the case of Source Capital, the ticker symbol is SOR.

Finding Source Capital

Click on Source Capital in the list on the next page. At the time of publication, Source Capital was the only item on the menu.

Premium or Discount

Look at the fund data in the upper right hand corner of the screen. You will find a data field that reads "premium/discount." If the number is negative, this is the discount for the fund at current market prices. If the number is positive, this is the market premium. It is generally preferable to buy funds at a discount to their NAVs, because this allows you to reap the benefit of constant dividends and constant earnings within the companies in the portfolio, while paying less for them than an open-end mutual fund investor or someone who buys these securities directly outside of a fund. However, there are no guarantees: Sometimes discounts can deepen--for no apparent reason. This could result in losses or poor returns, even though shares in the underlying companies have not lost value.




About the Author

Leslie McClintock has been writing professionally since 2001. She has been published in "Wealth and Retirement Planner," "Senior Market Advisor," "The Annuity Selling Guide," and many other outlets. A licensed life and health insurance agent, McClintock holds a B.A. from the University of Southern California.