NAV

Net Asset Value (NAV)

WHAT IT IS:

Most commonly used in reference to mutual or closed-end funds, net asset value (NAV) measures the value of a fund's assets, minus its liabilities. NAV is typically calculated on a per-share basis.

HOW IT WORKS (EXAMPLE):

A fund's NAV fluctuates along with the value of its underlying investments. The formula for NAV is:
NAV = (Market Value of All Securities Held by Fund + Cash and Equivalent Holdings - Fund Liabilities) / Total Fund Shares Outstanding

Let's assume at the close of trading yesterday that a particular mutual fund held $10,500,000 worth of securities, $2,000,000 of cash, and $500,000 of liabilities. If the fund had 1,000,000 shares outstanding, then yesterday's NAV would be:

NAV = ($10,500,000 + $2,000,000 - $500,000) / 1,000,000 = $12.00
A fund's NAV will change daily as the value of a fund's securities, cash held, liabilities, and the number of shares outstanding fluctuate.

WHY IT MATTERS:

Net asset values are like stock prices in that they measure the value of one share of a fund. Also, they give investors a way to compare a fund's performance with market or industry benchmarks (such as the Standard & Poor's 500 or an industry index). However, some analysts argue that comparing long-term changes in a fund's NAV is not as meaningful as comparing long-term changes in its share price because funds periodically distribute capital gains to their fundholders, thus reducing their NAV.