What it means
NAV stands for net asset value, which is simply assets minus liabilities. A fund holds shares, bonds, cash and other investments, and it also owes money for things such as management fees and unsettled trades.
Dividing the remaining net value by the number of fund shares outstanding gives the value attributable to each share. For open-ended mutual funds, NAV per share is normally calculated once a day after markets close.
Investors who buy or sell during the day usually transact at that day's closing NAV, so the price is not known until after the order has been placed. This is called forward pricing.
Exchange-traded funds and closed-end funds also publish a NAV per share, but their shares trade on an exchange at a market price that can differ from it. When the market price is higher the fund is said to trade at a premium, and when it is lower, at a discount.
Watching that gap tells an investor whether they are paying more or less than the underlying value. Businesses meet the number in several ways.
Treasurers who park surplus cash in money market funds track the NAV per share, which is meant to stay stable, and investors in unlisted funds or property vehicles use it in valuation reports and in judging whether a fund is expensive. A falling NAV per share does not always mean the investments have lost value.
When a fund pays out a dividend or capital gain distribution, its NAV drops by roughly the amount paid, and the investor holds the cash instead, so total return is a better measure than the NAV alone. Another nuance is that the quality of NAV depends on the quality of the valuations behind it.
Listed shares are easy to price, but private assets or thinly traded bonds may be valued by estimate, and those figures can change when real sales happen.
In practice
Real-world examples.
Example
A company treasurer places $1,000,000 of surplus cash into a money market fund with a NAV per share of $1.00. Because the NAV is held stable, she can buy one million shares and expects to get back about the same amount, plus interest.
Example
A retail investor sees that a closed-end fund trades at $18.00 while its NAV per share is $20.00. She realises she is buying $20.00 of assets for $18.00, a 10% discount, but she also checks why the discount exists before buying.
Example
A family office reviewing an unlisted property fund notices the NAV per share has been unchanged for three quarters while rents have fallen. The finance lead asks the manager how often the properties are independently revalued.
Formula
Calculation
NAV per share = (Total assets - Total liabilities) / Number of shares outstanding
Worked example: a fund holds investments and cash worth $52,000,000 and owes $2,000,000 in fees and unsettled purchases. It has 5,000,000 shares in issue.
Net asset value = $52,000,000 - $2,000,000 = $50,000,000
NAV per share = $50,000,000 / 5,000,000 = $10.00
If the fund's shares trade on an exchange at $10.40, the premium is ($10.40 - $10.00) / $10.00 = 0.04, or 4%.Case study
Seen in the real world.
Harbourview Growth Fund is an illustrative, fictional mutual fund with 4,000,000 shares and net assets of $60,000,000, giving a NAV per share of $15.00. In December the fund paid a distribution of $1.50 per share to its investors.
An inexperienced investor saw the NAV drop to $13.50 the next morning and assumed the fund had lost 10% of its value overnight. The fund's administrator explained that $6,000,000 of assets had simply been paid out as cash, so the investor now owned shares worth $13.50 plus $1.50 in cash.
In this illustrative story, the investor learned to compare total return, which includes distributions, instead of the raw change in NAV. The fund updated its website to show both figures side by side.
Watch out
Common mistakes.
- Assuming a fund with a low NAV per share is cheap, when the absolute number depends only on how many shares were issued.
- Reading a drop in NAV after a distribution as an investment loss.
- Forgetting that the price paid on an exchange for an ETF or closed-end fund can differ from its NAV per share.
Questions
People also ask.
When is NAV per share calculated?
Open-ended mutual funds usually calculate it once each business day after the market closes, while many ETFs also publish an estimate during the day.
Is a higher NAV per share better?
No, because it is only a per-share figure, and what matters is the return generated and the fees charged.
What are liabilities in a fund?
They include management fees owed, expenses accrued, borrowings and payables for investments bought but not yet settled.
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