A fund with NAV of $20 trading at $17 sits at a 15% discount. Buying there means acquiring a dollar of assets for 85 cents, and receiving distributions calculated on the full NAV, which raises the effective yield on the price paid.
Discounts persist because nothing forces convergence. Unlike an etf, there is no creation and redemption mechanism for an authorized-participant to arbitrage the gap. Only a corporate action such as a tender offer, buyback, open-ending or liquidation closes it, and boards control those.
Discounts widen in stress and narrow in enthusiasm, so they add a second layer of volatility on top of the portfolio itself. A fund bought at a premium carries the additional risk that the premium alone can disappear.
Related: closed-end-fund, net-asset-value, etf-arbitrage, authorized-participant, distribution-yield, arbitrage