Net Asset ValueMutual Funds
Net Asset Value, abbreviated as NAV, is the primary pricing method of mutual fund portfolios. A fund’s net asset value measures the total value of all assets, minus all liabilities of the fund. The NAV is essentially a snap shot of the fund’s net worth which is accurate for that single day. Since net asset value is based on the market value of investments owned, NAV is only updated when the market closes at the end of each day. The daily NAV is only good for the time between the close of today’s market and the opening of the market tomorrow. When the market opens, prices change and the net asset value is outdated.
If you are a value based investor you should notice that the NAV is based on the market value of the assets. This means they are not based on the intrinsic or real value of the investments. They’re indirectly based on the demand for the investments. Intrinsic value cannot be appraised on a daily basis. Using intrinsic value’s quarterly or annual updates would be highly inefficient for updating net asset value.
Mutual funds are investment companies, and each has shares investors like you will purchase to signify ownership. Your percentage of ownership is based on the amount of shares you own relative to the total amount of shares available for the fund, but that is not specifically relevant to NAV. If the fund you own has share prices based strictly on NAV, current value can be determined by dividing net asset value by the fund’s shares outstanding. If this hasn’t already been given, which it usually is, you can find per share net asset value with the equation below.
Multiply the NAV per share by your owned shares to find your investment’s current value.
Your rate of return can also be calculated using Net Asset Value. The equation is simple.
This equation ignores any potential front end or back end load fees. A Front End load fee is a percentage deducted from the initial investment for commissions. A back end load fee is a deferred percentage fee that is deducted from the investment when you are exiting the fund. The annual operating expense, and annual 12b-1 fees, are both deducted from the fund before you see the net asset value, so no adjustments are needed for those numbers. Rate of return will already have their impact included within the result.
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