Net Asset Value (NAV): Definition, Formula, Example, and Uses (2024)

What Is Net Asset Value?

Net asset value (NAV) is the value of an investment fund that is determined by subtracting its liabilities from its assets. The fund's per-share NAV is then obtained by dividing NAV by the number of shares outstanding.

Most commonly used with a mutual fund or unit investment trusts, per-share NAV is the price at which the shares of the funds registered with the U.S. Securities and Exchange Commission (SEC) trade. NAV can change on a daily basis. Therefore, per-share NAV can, as well.

Key Takeaways

  • NAV is the value of an investment fund, determined by subtracting liabilities from assets.
  • The per-share NAV is calculated by dividing the NAV by the number of shares outstanding.
  • NAV and per-share NAV are calculated for a mutual fund or unit investment trust.
  • NAV is calculated at the end of each business day using the closing market prices of the portfolio's securities.

Net Asset Value (NAV): Definition, Formula, Example, and Uses (1)

Understanding Net Asset Value

For companies and business entities, the difference between assets and liabilities is known as the net assets, the net worth, or the capital of the company. NAV is also applied to fund valuation and pricing.

A fund’s per-share NAV makes pricing easy for investors to understand. So it is used to value and conduct the buying and selling of a fund's shares.

NAV per individual share is often close to or equal to the book value per share of a business. Companies considered to have high growth prospects are traditionally valued more than NAV might suggest. For closed-end funds, per-share NAV is frequently compared to the stock price (market value per share) to find undervalued or overvalued investments.

NAV Formula

NAV = Assets - Liabilities

NAV per share = (Assets - Liabilities) / Total number of outstanding shares


Let's look at a calculation for the per-share NAV of a mutual fund. Assume that the fund has $100 million worth of investments in different securities (a figure calculated from the day's closing prices for each security).

It also has $7 million of cash and cash equivalents on hand, $4 million in totalreceivables, and accrued income for the day of $75,000.

As for liabilities, the fund has $13 million in short-term liabilities and $2 million in long-term liabilities. Accrued expenses for the day are $10,000.

Furthermore, the fund has 5 million shares outstanding.

1. To determine per-share NAV, first calculate the fund's NAV:

Total assets are:

$100,000,000 + $7,000,000 + $4,000,000 + $75,000, or $111,075,000

Total liabilities are:

$13,000,000 + $2,000,000 + $10,000, or $15,010,000

NAV = $111,075,000 - $15,010,000, or $96,065,000

2. Next, calculate per-share NAV:

Per-share NAV = $96,065,000 / 5,000,000, or $19.21

The actual purchase price investors pay for mutual fund shares will be the per-share NAV plus related fees, such as sales loads. The amount they receive when redeeming shares will be the per-share NAV less related fees, such as redemption fees.

Mutual Funds and NAV

Mutual fundscollect money from a large number of investors. They then use that money to invest in securities, such as stocks, bonds, and money market instruments. Each investor gets a specified number of shares in proportion to their invested amount. The pricing of each share is based on NAV.

Unlike a stock whose price changes are posted throughout the day, mutual fund pricing typically is calculated based on the daily closing prices of the securities in the fund.

Thus, at the end of the trading day, managers of a mutual fund compute the closing price of all the securities within its portfolio, add the value of any additional assets, account for liabilities, and calculate NAV. They also calculate the per-share NAV using NAV and the number of outstanding shares.

Closed-End vs. Open-End Funds NAV

An open-end fund can issue an unlimited number of shares, does not trade on exchanges, and is priced each day at the close of trading using their NAV. Most mutual funds, such as those in 401k plans, are open-end funds.

Closed-end funds are listed on a stock exchange, trade similarly to securities, and can trade at a price that's not equal to their NAV. For example, ETFs trade like stocks and their market value can differ from their actual NAV.

This allows for profitable trading opportunities for active ETF traders who can spot timely opportunities. Similar to mutual funds, ETFs also calculate their NAV daily at the close of the market for reporting purposes but also calculate and disseminate intra-day NAV multiple times per minute in real-time.

NAV and Fund Performance

Fund investors often try to assess the performance of a mutual fund based on their NAV differentials between two dates. An investor may compare the NAV on January 1 to the NAV on December 31, and see the difference in the two values as a gauge of the fund’s performance. However, changes in NAV between two dates aren’t the best representation ofmutual fundperformance.

Mutual funds commonly pay out all of their income, like dividends and interest earned, to their shareholders. Additionally, mutual funds are obligated to distribute the accumulated realized capital gains to the shareholders.

As these two components, income, and gains, are regularly paid out, the NAV decreases accordingly. Therefore, though a mutual fund investor earns income and returns, individual earnings are not reflected in the absolute NAV values when compared between two dates.

A reliable measure of mutual fund performance is the annualtotal return, which is the actual rate of return of an investment or a pool of investments over a given evaluation period. Investors and analysts also look at compounded annual growth rate (CAGR), which represents the mean annual growth rate of an investment over a specified period longer than one year.

What Is the Difference Between Mutual Fund NAV and Book Value Per Common Share?

The book value per common share reflects an analysis of the price of a share of stock of an individual company. On the other hand, NAV reflects the total value of a mutual fund after subtracting its liabilities from its assets.

What Are the Trading Timelines for NAV?

While NAV is computed and reported as of a particular business date, all of the buy and sell orders for mutual funds are processed at the per-share NAV on their trade dates. If regulators mandate a cutoff time of 1:30 p.m., then buy and sell orders received before 1:30 p.m. on a particular day will be executed at the per-share NAV determined on that day. Any orders received after the cutoff time will be executed at the per-share NAV of the next business day.

What Is the Difference Between NAV and Shareholder Equity?

Equity is calculated by including intangible assets, which can include items like patents, while NAV is calculated using only tangible assets.

The Bottom Line

Net asset value is the value of an investment fund determined by subtracting its liabilities from its assets. Per-share NAV is calculated by dividing NAV by the number of shares outstanding. Funds can be open or closed and the pricing of each share is based on NAV.

Net Asset Value (NAV): Definition, Formula, Example, and Uses (2024)
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