Net Asset Value (NAV)
Definition
Net asset value (NAV) is the per-share value of a fund, calculated by subtracting liabilities from the total value of its holdings and dividing by the number of shares outstanding.
Detailed Explanation
The formula is straightforward: total assets minus liabilities, divided by shares outstanding. What it represents is your proportional claim on the portfolio (if the fund liquidated everything at current prices and paid its bills) NAV is what each share would be worth. It's conceptually similar to book value for an operating company, with one important difference: for a mutual fund, NAV isn't a reference point you compare against a market price. It is the price.
NAV = (Total Assets - Total Liabilities) / Total Shares Outstanding
That's because of how funds are priced. A mutual fund calculates NAV once per trading day, after the market closes at 4:00 p.m. Eastern, and every order placed that day fills at that single price. SEC rules require this forward pricing, you can't know the price when you place the order, which is why there's no such thing as a limit order on a mutual fund. When a fund holds securities that didn't trade that day, such as foreign stocks whose home markets were closed, the fund uses fair value pricing to estimate what they're worth rather than relying on a stale quote.
NAV and market price part ways once a fund trades on an exchange. An ETF has a NAV, but it also has a live market price all day, and the two can differ. Large institutions can create and redeem ETF shares in bulk, and that mechanism gives them a profit motive to close any meaningful gap, so ETF prices usually track NAV closely. Closed-end funds have no such mechanism (their share count is fixed). As a result they routinely trade at a persistent discount or premium to NAV, sometimes double digits for years at a stretch. For closed-end funds, the discount is a central part of the investment case rather than a rounding error.
Two things NAV does not tell you, both of which trip people up. First, a low NAV doesn't mean a fund is cheap. A $10 NAV fund and a $100 NAV fund holding the same portfolio are identical investments (you simply get ten times as many shares). Unlike a stock price, NAV carries no information about valuation.
Second, NAV drops on distribution dates. When a fund pays out dividends or capital gains, NAV falls by the distribution amount, which looks alarming on a statement but isn't a loss, the money moved from the fund to you. What NAV also won't show you is cost; that's the expense ratio, which is deducted from returns rather than billed. Compare funds on total return and cost, never on NAV level.
Example
Suppose a fund holds $500 million in securities and owes $5 million in accrued management fees and expenses. Net assets are $495 million. Divided by 10 million shares outstanding, NAV is $49.50 per share. Now suppose you place a buy order at 11:00 a.m. You aren't buying at a price you can see — you'll pay whatever NAV works out to be after that day's 4:00 p.m. close, which could be higher or lower.
Key Articles Related Net Asset Value
Related Terms
Mutual Fund: A pooled investment that issues and redeems shares at NAV, calculated once each trading day.
ETF: An exchange-traded fund, which has a NAV but also trades at a live market price that can sit slightly above or below it.
Closed-End Fund: A fund with a fixed share count that trades on an exchange, often at a persistent discount or premium to NAV.
Asset Management: The professional management of pooled investments, the business that produces the portfolios NAV measures.
Premium and Discount: The amount by which a fund's market price exceeds or falls below its net asset value.
FAQs
How is net asset value calculated?
Add up the market value of everything the fund holds, subtract its liabilities, accrued fees, expenses, and any borrowings, and divide by shares outstanding. A fund with $495 million in net assets and 10 million shares has a NAV of $49.50.
When is NAV calculated?
Once per trading day, after the market closes at 4:00 p.m. Eastern. Every mutual fund order placed during that day is filled at the same NAV, regardless of whether you placed it at 9:30 a.m. or 3:59 p.m.
Is a fund with a lower NAV a better deal?
No. NAV level carries no valuation information the way a stock price arguably does. Two funds holding identical portfolios at $10 and $100 NAV are the same investment (you just receive a different number of shares for your money).
Why did my fund's NAV drop suddenly?
Often it's a distribution. When a fund pays out dividends or capital gains, NAV falls by the amount distributed. Your total value is unchanged, since you received the cash or additional shares. Check whether the drop coincides with a distribution date before assuming the portfolio lost value.
What's the difference between NAV and market price?
Mutual funds transact only at NAV, so there's no separate market price. ETFs and closed-end funds trade on exchanges, so they have both. ETF market prices track NAV closely thanks to the creation and redemption process; closed-end funds can diverge substantially and stay that way.
Does NAV account for fees?
Partially. Accrued expenses are subtracted as liabilities, so ongoing costs are reflected in NAV over time. But NAV won't show you the expense ratio, sales loads, or transaction costs as line items. Those come out of returns quietly, which is why the prospectus fee table matters more than the NAV figure.