Understanding NAV Erosion
NAV is the fund’s asset value per share. Erosion means that value keeps slipping while distributions stay loud.
What it is
Some of a high distribution can be option premium, realized gains, or return of capital. If assets leave faster than they are replaced, NAV trends down.
Not every down month is erosion. A path that never recovers while yield stays elevated is the pattern to study.
Hypothetical: $25 NAV, $0.25 monthly payout
Labeled hypothetical — not a live yield, AUM, or tax bracket.
- Monthly $0.25 on $25 NAV is a 1% monthly print — 12% annualized if it lasted, which it may not.
- If NAV is $22 a year later and payouts totaled $3.00, you collected cash while the share cheapened $3. Net depends on what you paid.
- The calculator lets you plug actual prices and distributions. Do not use this toy path as a forecast.
Who this is for
- Holders of option-income and single-stock distribution ETFs.
- Anyone comparing 8%+ names.
Who this is not for
- Calling every covered-call ETF a decay machine without looking at the path.
What people get wrong
- Using yield as proof NAV is healthy.
- Ignoring that ROC reduces basis.
How to check it on Dividend Wealth
Open the NAV erosion calculator, then the 8%+ ETF list for the universe those products live in.
Related lessons
- Why High Yield Doesn’t Mean High Income · Dividend Terms
- Covered-Call ETFs · ETF Types
- Return of Capital · Taxes
FAQ
What is NAV erosion?
A persistent decline in net asset value while the fund keeps paying distributions. Some of that cash may be your principal coming back.
Do all covered-call ETFs erode NAV?
No. Some keep pace with a reduced-upside equity book. Check the path, not the category label.
How do I check NAV erosion on Dividend Wealth?
Use the NAV erosion calculator, then open the ETF’s scorecard and the 8%+ list for peers.
Educational only — not investment, tax, or legal advice. Dividend Wealth does not recommend 2x daily, inverse, or single-stock YieldMax products as “best income.” Yields change. Confirm filings and your own tax situation.