What Is NAV in Investing? Net Asset Value in Simple Words
When you look at a mutual fund, you will see a price called NAV, short for net asset value. It is the price of one share in the fund. This guide explains what NAV means in plain words, how it is worked out, why it moves up and down, and how it differs for an ETF.
The short answer
Net asset value, or NAV, is the price of one share in a mutual fund. You find it by taking everything the fund owns, subtracting what it owes, and dividing the result by the number of shares. A mutual fund buys and sells its shares at the next NAV it calculates, usually once a day after the market closes.
What NAV means, in plain words
Net asset value is a simple idea. A mutual fund is a pool of money from many investors, and the fund uses that money to buy a collection of investments, such as stocks and bonds. The fund also has some bills to pay. NAV is the value of one share in that pool.
The formula is: NAV equals total assets minus total liabilities, divided by the number of shares. Total assets means everything the fund owns, valued at the current market prices. Total liabilities means everything the fund owes, such as fees and expenses it has not yet paid. Divide what is left by the number of shares, and you get the value of one share. That value is the NAV.
What counts as assets and liabilities
The assets of a fund are the investments it holds. For a stock fund, that means the shares of companies the fund owns, plus any cash it holds. For a bond fund, it means the bonds. The value of those assets changes every day, because the prices of stocks and bonds move up and down.
The liabilities are smaller, but they matter. They include the fund’s running costs, such as the fee paid to the company that manages the fund, and other expenses. Investor.gov notes that funds pass along these costs to investors by deducting fees and expenses from NAV. In other words, the costs come out of the value of the fund before the NAV is worked out, so they lower the NAV a little each day.
A worked example
Here is a simple example, with made up round numbers, to show how NAV is worked out. Imagine a mutual fund that owns $10,000,000 of assets and owes $200,000 in liabilities, and it has 500,000 shares. First, subtract the liabilities from the assets: $10,000,000 minus $200,000 is $9,800,000. Then divide that by the number of shares: $9,800,000 divided by 500,000 is $19.60. So the NAV is $19.60 per share. If you wanted to buy one share, you would pay $19.60, plus any fee charged at the time of purchase.
Now imagine the fund’s assets rise to $11,000,000 while the liabilities and the number of shares stay the same. The new NAV is $11,000,000 minus $200,000, which is $10,800,000, divided by 500,000, which is $21.60 per share. The NAV went up because the assets went up.
Why NAV moves up and down
NAV moves because the value of the fund’s investments moves. Investor.gov puts it this way: if the market value of a fund’s portfolio increases, after deducting expenses and liabilities, then the NAV of the fund and its shares increases. When the investments fall in value, the NAV falls too. Fees also pull the NAV down a little each day, because they are deducted from it.
That means the NAV is a snapshot of the fund’s value at one point in time, not a fixed price. It changes every day the market is open, as the prices of the things the fund owns change.
How mutual funds use NAV
A mutual fund buys and sells its shares at the NAV. Investor.gov explains that investors buy and sell mutual fund shares from and to the fund itself, and the purchase price is the next calculated NAV, plus any fees charged at the time of purchase. Mutual fund shares are redeemable, which means investors can sell the shares back to the fund at any time at the next calculated NAV, minus any fees charged at the time of redemption.
The key word is next. A mutual fund does not trade all day like a stock. It calculates its NAV once a day, after the market closes, using the closing prices of the investments it holds. If you place an order during the day, you do not know the exact price you will get. You get the NAV that is calculated at the end of that day. That is why the price you see for a mutual fund is always the last calculated NAV, not a live price.
NAV and ETFs
An ETF, or exchange traded fund, is similar to a mutual fund, but it trades differently. ETF shares are bought and sold on a stock exchange, like shares of a company, and their price is set by buyers and sellers during the day. That price can sit slightly above or below the ETF’s NAV.
When the market price is above the NAV, the ETF is said to trade at a premium. When it is below the NAV, it trades at a discount. The gap is usually small, because large investors can buy and sell the ETF’s underlying investments to bring the price back toward the NAV. But the gap can widen when markets are moving fast or when the things the ETF owns are hard to trade. The NAV is still the value of the fund’s holdings per share; the market price is what buyers and sellers are willing to pay for it at that moment.
What NAV does not tell you
NAV is useful, but it does not tell you everything. A high NAV is not better than a low NAV. A fund with a NAV of $100 per share is not better than a fund with a NAV of $10 per share. The NAV is just the price of one share, and the number of shares is different for every fund. What matters is how the NAV changes over time, not how large it is.
NAV also does not tell you whether a fund is a good investment. It tells you the value of what the fund owns, but not whether those investments will do well in the future, and not whether the fund’s fees are low or high. It is one number among many, and it should be read alongside the fund’s costs, its history, and what it invests in.
Quick answers
Net asset value is the price of one share in a mutual fund. It is everything the fund owns, minus what it owes, divided by the number of shares.
A mutual fund calculates its NAV once a day, after the market closes. Investors buy and sell shares at the next NAV the fund calculates.
Yes. An ETF trades on a stock exchange at a market price set by buyers and sellers, so its price can sit slightly above or below its NAV. A mutual fund, by contrast, buys and sells shares at the NAV itself.
Related guides
- Investing for Beginners: A Simple Guide to Your First Investment
- Stocks vs Bonds: What Is the Difference?
- How Often Are Dividends Paid?
Further reading
For the official explanation of how mutual funds use NAV, see the Investor.gov page Mutual Funds. It explains that investors buy and sell mutual fund shares at the next calculated NAV, and that the NAV rises when the value of the fund’s portfolio rises after deducting expenses and liabilities. Investor.gov also has a glossary entry for net asset value.
This article is educational only and is not financial advice. It explains net asset value in general terms. It does not recommend any fund or investment, and past performance does not predict future results.
