It is useful to understand some of the common terms associated with investment companies, funds and REITs. Understanding these terms provides insight into how the investments work and how to evaluate them.

Net Asset Value (NAV)
Investment vehicles such as mutual funds, REITS and exchange-traded funds, hold multiple underlying investments, including stocks, bonds, real estate and other assets. When the total value of these assets is added up, liabilities are subtracted and the remaining number is divided by the number of outstanding shares; the resulting value is referred to as the net asset value (NAV). The NAV represents the per-share price investors would spend to purchase a single share of the investment.

NAV per share is computed once a day for open-end mutual funds, based on the closing market prices of the securities in the fund's portfolio. Buy and sell orders are processed at the NAV of the trade date; however, investors must wait until the following day to get the trade price. Because ETFs and closed-end funds trade like stocks, their shares trade at market value, which can be a dollar value above (trading at a premium) or below (trading at a discount) NAV.

Because many pooled investment vehicles pay out virtually all of their income and capital gains, changes in NAV are not the best gauge of mutual fund performance, which is best measured by annual total return.

SEE: Capital Gains Tax 101



Efficient Market Hypothesis (EMH)

Related Articles
  1. ETFs & Mutual Funds

    Understanding Mutual Fund Returns

    By Richard Loth (Contact | Biography)The return on any investment, measured over a given period of time, is simply the sum of its capital appreciation and any income generated divided by the ...
  2. ETFs & Mutual Funds

    An Introduction To Closed-End Mutual Funds

    If you're looking to generate income for your investments, look no further.
  3. ETFs & Mutual Funds

    Mutual Fund Or ETF: Which Is Right For You?

    Learn the differences between these investment products and how to take full advantage.
  4. ETFs & Mutual Funds

    Understanding Open-End Funds

    An open-end fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy.
  5. ETFs & Mutual Funds

    A Guide to Mutual Funds Trading Rules

    Make sure to review this guide on the dos and don'ts of mutual fund trading before you invest, including how trades are executed and which fees to look out for.
  6. ETFs & Mutual Funds

    Mutual Funds

    What mutual funds are: Professionally managed pools of stocks, bonds and/or other instruments that are divided into shares and sold to investors. Pros: Diversification; liquidity; simplicity; ...
  7. ETFs & Mutual Funds

    Trading Mutual Funds For Beginners

    Learn about the basics of trading and investing in mutual funds. Understand how the fees charged by mutual funds can impact the performance of an investment.
  8. ETFs & Mutual Funds

    Open Your Eyes To Closed-End Funds

    Although less popular than their open-ended counterparts, these investment vehicles are worth a second look.
  9. ETFs & Mutual Funds

    Trading Mutual Funds for a Living: Is It Possible?

    Find out why trading mutual funds for a living isn't your best bet, including how funds discourage short-term trading and which options may better serve you.
  10. ETFs & Mutual Funds

    Closed-End Vs. Open-End Funds

    Open-end products may be a safer choice than closed-end, but closed-end funds might produce a better return.
Trading Center