What is the Meaning of 'Net Asset Value'?

Written by Paayi Finance |01-Aug-2020 | 0 Comments | 333 Views

Net asset value (NAV) is the value of a body’s assets minus the value of its liabilities, often it is related to open-end or mutual funds, as shares of such funds are registered with the U.S. Securities and Exchange Commission are recoverable at their net asset value. 

A fund's NAV fluctuates on a daily basis as the value of a fund's securities, cash held, liabilities, and the number of shares outstanding fluctuates.

Net asset values are same as stock prices as they measure the value of one share and give investors a way to compare a fund's performance with a market or industry standards.


NAV (Net Assets Value) Definition

The difference between assets that are owned by the firm to liabilities outstanding by a firm is known as net asset value (NAV).



NAV(net asset value) is also affiliated with mutual funds and helps an investor to determine whether the fund is overvalued or undervalued. If we talk about open-end funds, NAV( net asset value) is essential in this regard as NAV gives the fund's value that an investor will be looking forward to at the time of withdrawal of investment.

In a case of a closed-end fund, which is a mutual fund with the fixed number of units, price per unit is determined by the market and is either below or above the NAV.


Mutual Funds

A mutual fund is an investment vehicle made up of different funds that are put together by many investors to invest in securities various securities like stocks, bonds, money market instruments and similar assets.



A mutual fund is a bag of managed of stocks and bonds. You can think of a mutual fund as a company that brings together a large group of people and invests their money on their behalf to invest.

Each investor owns shares of the mutual fund, which represent a portion of its holdings.


Closed-Ended Funds

Closed-end funds are formed as a public investment company by the Securities and Exchange Commission (SEC). A closed-end fund is also an investment fund put together same as a mutual fund with a managed portfolio as it boasts a fixed amount of capital through an initial public offering.



We can explain closed-ended fund as it is a joint investment model based on issuing a fixed number of shares which are not recoverable from the fund.

It is opposite to open-ended funds, in which new shares are not created by managers to meet the need of investors. Instead, the shares can be secured and sold only in the market.


Characteristics if Close end funds

  • Closed to new capital after the commencement of operation
  • Unlike open-ended funds, its shares could be traded anytime during market opening hours
  • Its shares are usually traded on the stock exchange.
  • Most of the time it is traded at a premium or discount to its net asset value


Net Asset Value formula 

Following is the formula shows how to calculate nav for mutual funds 

NAV = Market value of all securities held + Cash and Cash Equivalents – Liabilities/ Outstanding Shares



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


As we know that


NAV = Market value of all securities held + Cash and Cash Equivalents – Liabilities/ Outstanding Shares

NAV = ($10,500,000 + $2,000,000 - $500,000) / 1,000,000 = $12.00


Conclusion of NAV

In the end, we can say that NAV could be obtained by subtracting the assets of the firm to liabilities outstanding.

A firm’s NAV fluctuates on a daily basis and NAV is also closely related to mutual funds and helps an investor to determine whether he should invest or not.

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