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Net Asset Value: Definition and Calculation


When making an investment decision, it helps to use all of the resources at your disposal. Investors often include net asset value when considering an investment. Net Asset Value (NAV) is one way to calculate the value of a mutual fund or an exchange-traded fund (ETF). Here’s how it works.

Net Asset Value Explained

Net Asset Value (NAV) is the value of an entity’s assets minus its liabilities divided by outstanding shares. This represents the total value of an entity. Generally, this calculation is used to determine the value of mutual funds and exchange-traded funds (ETFs). Investors use NAV to represent the per-share or per-unit price of an entity on a certain date or time.

You may assume that any company or business that has assets and liabilities can calculate its NAV. However, companies generally use a net asset or net worth calculation. That is the difference between its assets and liabilities. Recently, the term NAV has become popular regarding fund valuation and pricing. Because investors are dividing the difference between assets and liabilities, the fund essentially denotes the per-share value of any given fund. By calculating the NAV investors can value shares of funds.

Net Asset Value for Mutual Funds

Mutual funds don’t trade in real-time like stock prices tend to do. Stock prices fluctuate every second. However, mutual fund prices are based on the previous day’s assets and liabilities. When calculating the assets for the mutual fund, you must include the fund’s investment, accounts receivable, cash and cash equivalents, and accrued income. Because the fund may have liquid assets, you will record the cash under cash equivalents. Accrued income is earned income that hasn’t been received yet. But the fund’s receivables will include interest payments and dividends that occurred this specific day.

Conversely, liabilities include the amounts owed to banks or lenders, pending expenditures, and other charges or fees. Depending on the payment date, expenses will either fall under short-term or long-term liabilities. Accrued expenses will include staff salaries, operational costs, management fees, and more.

How to Calculate New Asset Value for a Mutual Fund

net asset valueThe NAV calculation is pretty simple. It is:

NAV = (Assets – Liabilities) / Total number of shares outstanding

The value of assets is usually the value of all the securities in the portfolio. While the value of liabilities is a combination of all liabilities such as management fees, audit expenses, operational costs, staff salaries, and more. For example, let’s say we wanted to calculate the NAV of a mutual fund and were given the following data:

  • Value of securities in the portfolio at closing the day before ($70 million)
  • Accumulated income for the day ($16 million)
  • Total receivables ($2 million)
  • Cash and cash equivalents ($20 million)
  • Long-term liabilities ($13 million)
  • Short-term liabilities ($1 million)
  • Accumulated costs for the day ($10 million)
  • Outstanding shares ($15 million)

($70,000,000 + $16,000,000 + $2,000,000 + $20,000,000) – ($13,000,000 + $1,000,000 + $10,000,000) / $15,000,000

NAV= 5.60

The mutual funds’ share will trade at $5.60 for this day.

Net Asset Value for ETFs

ETFs or other close-ended funds trade like stocks on an open market. They can trade slightly above or below the NAV. Because they trade slightly above or below the actual NAV, active traders can capitalize on profitable trading opportunities if they can identify them.

If you’re looking for a more accurate measurement, ETFs also calculate their NAV every day as well as disseminate intraday NAV several times per minute.

Intraday NAV for ETFs

If we want to calculate the NAV of an ETF, let’s say the ETF is $100 and you purchase $25 shares, which costs you $2,500 ($100 x 25). Then two months later the NAV is $120, making your investment $3,000 ($120 x 25).

This would result in a $500 profit. Your holding period return would then be 20% (($3,000-$2,500)/ ($2,500)).

How to Use the Net Asset Value in Investing

Often, investors evaluate a good investment opportunity by comparing two NAV calculations on two different days. For example, an investor may compare the NAV on Jan. 31 compared to the NAV of Feb. 1. They may do this to measure the fund’s performance. However,  reviewing the NAV of both dates may not be the best metric to measure a fund’s performance.

Mutual funds are required to pay out accumulated realized capital gains as well as all their income. Income can include interest earned or dividends paid. Therefore, since companies regularly pay out income to shareholders, the NAV may drop in correlation to these payments. This means that these values are not represented in the NAV values when you compare two dates.

Instead of using NAV to determine a good mutual fund investment opportunity, it’s wise to measure the total fund performance. This is the actual rate of return of any given investment. Many investors also use the compound annual growth rate (CAGR), which is the mean annual growth rate of an investment over a certain amount of time. This period, however, must be greater than a year, but it accounts for all intermediate income payments and gains.

The Bottom Line

net asset valueTo calculate the net asset value of an entity you will subtract the liabilities from the assets and then divide by the outstanding number of shares. While the net asset value might help investors identify investment opportunities, they may want to use this calculation method with other metrics to ensure the investment makes sense. So, if a certain security interest you, make sure to conduct a full evaluation of that security before making your final investment decision.

Investment Tips

  • Consider talking to a financial advisor about the net asset value of any securities you’re considering trading. Finding a financial advisor doesn’t have to be hardSmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goalsget started now.
  • If you’ve only got a little money to invest in the market, you may be better off working with a robo-advisor. These investing services will determine your ideal asset allocation and then build you an investment plan.

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