The Short Answer
Net asset value, or NAV, is the per-share value of a mutual fund or ETF. It’s calculated by taking everything the fund owns, subtracting what it owes, and dividing by the number of shares outstanding. Mutual funds are bought and sold once a day at their NAV, calculated after the market closes, while ETF shares trade throughout the day at market prices that closely track, but can briefly differ slightly from, their NAV.
In short, NAV is simply a fund’s price tag per share.
How NAV Is Calculated
- Total the fund’s assets — the value of every stock, bond, or other holding it owns.
- Subtract the fund’s liabilities — any expenses or amounts it owes.
- Divide by the number of shares outstanding. The result is the NAV per share.
NAV for Mutual Funds vs. ETFs
- Mutual funds — trade once a day, all buy and sell orders that day are filled at that day’s end-of-day NAV.
- ETFs — trade continuously throughout the day at a market price that can be slightly above (a premium) or below (a discount) the fund’s actual NAV.
A Simple Example
Example: A fund holds $500 million in assets and owes $10 million in liabilities, leaving $490 million in net assets. Divide that by 49 million shares outstanding, and the NAV is $10.00 per share. If you invest $1,000 in the fund that day, you’d receive 100 shares at that day’s NAV. The next day, if the fund’s holdings rise in value, the NAV might climb to $10.20 per share, reflecting that gain.
Why NAV Matters
- NAV isn’t the same as total return. A fund’s real performance combines NAV changes with any dividends or capital gains it distributes.
- NAV drops when a fund makes a distribution, such as paying out dividends or capital gains — that’s normal and isn’t a loss, since you receive the distribution separately.
- Comparing NAV alone between two different funds tells you little; what matters is how each fund’s NAV and distributions change over time.
The Bottom Line
Net asset value is the per-share price of a mutual fund or ETF, based on what the fund owns minus what it owes. Mutual funds price once a day at NAV, while ETFs trade all day at a market price that tracks NAV closely. Understanding NAV helps you make sense of your fund statement, but remember that a fund’s real performance includes both NAV changes and any distributions paid along the way.
Frequently Asked Questions
What is NAV in simple terms?
It’s the per-share price of a mutual fund or ETF, found by subtracting what the fund owes from what it owns and dividing by the number of shares.
Why did my fund’s NAV drop even though I didn’t sell anything?
The most common reason is a distribution — the fund paid out dividends or capital gains, which lowers the NAV by roughly the amount paid out. You should have received that amount separately, either as cash or reinvested shares.
Is a lower NAV a better deal?
Not by itself. A fund’s NAV is just its price per share, not a measure of value or quality — a $10 NAV fund and a $100 NAV fund can hold similar underlying investments and perform the same way percentage-wise.
How often is NAV updated?
Mutual fund NAV is calculated once per business day, after the market closes. ETF market prices update continuously during trading hours, though their official NAV is typically also calculated once a day.
Why do ETF prices sometimes differ from NAV?
Because ETFs trade throughout the day based on supply and demand, their market price can drift slightly above or below the underlying NAV before market forces and specialized traders bring it back in line.
Does NAV apply to individual stocks?
No. NAV is a fund concept, used for mutual funds, ETFs, and similar pooled investments. Individual stock prices are simply set by continuous trading on an exchange.
This article is for educational purposes only and is not investment, financial, or tax advice. Investing involves risk, including the possible loss of principal. Market values fluctuate and past performance does not guarantee future results. Consider your own situation and consult a qualified financial professional before making investment decisions.