What is Net Asset Value?
Net Asset Value (NAV) estimates the market value of an investment fund, namely mutual funds, and is equal to the total value of assets held minus the total liabilities.
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The net asset value (NAV) commonly appears in the context of mutual funds, as the metric serves as the basis for setting the mutual fund share price.
NAV on a per-unit basis represents the price at which units (i.e. ownership shares) in the mutual fund can be purchased or redeemed, which is typically done at the end of each trading day.
A mutual fund’s NAV is a function of the market value of all securities held in its portfolio.
- Portfolio Value Increases ➝ NAV Increases
- Portfolio Value Decreases ➝ NAV Declines
However, just as in the case of valuing individual public equities, the past performance of a mutual fund is not reflective of future performance.
Fund investors must ask, “Will the mutual fund’s strategy continue to perform well into the future?”
In addition, the mutual fund’s objective, risk/return profile, and time horizon must align with the criteria of the investor, rather than solely evaluating funds based on their NAV.
Net Asset Value Formula
The NAV of a mutual fund is calculated by subtracting the total liabilities from its total assets.
Since NAV is typically expressed on a unit price basis, i.e. per share, NAV must be divided by the total number of units outstanding.
