Net Asset Value - NAV

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What is 'Net Asset Value - NAV'

Net asset value (NAV) is value per share of a mutual fund or an exchange-traded fund (ETF) on a specific date or time. With both security types, the per-share dollar amount of the fund is based on the total value of all the securities in its portfolio, any liabilities the fund has and the number of fund shares outstanding.

BREAKING DOWN 'Net Asset Value - NAV'

In the context of mutual funds, NAV per share is computed once per day based on the closing market prices of the securities in the fund's portfolio. All of the buy and sell orders for mutual funds are processed at the NAV of the trade date. However, investors must wait until the following day to get the trade price. Mutual funds pay out virtually all of their income and capital gains. As a result, changes in NAV are not the best gauge of mutual fund performance, which is best measured by annual total return.

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. ETFs have their NAV calculated daily at the close of the market for reporting purposes, but they also calculate intra-day NAV multiple times per minute in real time.

Example Mutual Fund Net Asset Value Calculation

The formula for a mutual fund's NAV calculation is straightforward:

NAV = (assets - liabilities) / number of outstanding shares

In this context, assets include total market value of the fund's investments (priced using the closing price of all the assets on the day the NAV is calculated), cash and cash equivalents, receivables and accrued income. Liabilities equal total short-term and long-term liabilities, plus all accrued expenses, such as staff salaries, utilities and other operational expenses.

For example, a mutual fund has $100 million of investments, based on the day's closing prices for each individual asset. It also has $7 million of cash and cash equivalents on hand, as well $4 million in total receivables. Accrued income for the day is $75,000. The fund has $13 million in short-term liabilities and $2 million in long-term liabilities. Accrued expenses for the day are $10,000. The fund has 5 million shares outstanding. The NAV is calculated as:

NAV = (($100,000,000 + $7,000,000 + $4,000,000 + $75,000) - ($13,000,000 + $2,000,000 + $10,000)) / 5,000,000 = ($111,075,000 - $15,010,000) / 5,000,000 = $19.21

In practice, the expenses many be numerous; operating expenses, management expenses, distribution and marketing expenses, transfer agent fees, custodian and audit fees are all included.

Relation to Share Price

Mutual funds and ETFs relate their market prices to NAV, but the market price includes fees such as sales loads or purchase fees. The price for selling a share is based on the per-share NAV but subtracts any fees charged at redemption, including deferred sales loads or redemption fees. Like stocks, the market value of mutual funds and ETFs also fluctuates based on supply and demand, but typically stays closely tied to NAV.