What Is Net Asset Value (NAV)?

What Is Net Asset Value (NAV)?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Net Asset Value (NAV) is a term used in investments, specifically referring to a fund’s or a company’s per-share value. It’s calculated by subtracting the total liabilities from the total assets, then dividing that number by the total number of shares outstanding. This gives investors an understanding of what a share in a particular fund or company is worth.

Related Questions

1. How often is NAV calculated?

For most mutual funds, the NAV is calculated once at the end of every business day. This is when the fund’s assets and liabilities can be valued accurately. It’s a different case for Exchange-Traded Funds (ETFs) where the NAV can be calculated multiple times throughout the day.

2. What does a high NAV mean?

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A high NAV could either mean that a fund’s or company’s assets are significantly greater than its liabilities, or that the fund or company has few shares outstanding. It’s essential not to misinterpret a high NAV as an indicator of strong performance.

3. Is it better to invest in mutual funds with lower NAV?

Not necessarily. A lower NAV doesn’t mean you’re getting a better deal. It simply represents the per-share value of a fund, not its performance or potential. One needs to consider other factors such as the fund’s investment strategy, expense ratio, and historical performance before making a decision.

4. What happens to NAV when a fund distributes dividends?

When a fund distributes dividends, its NAV reduces by the amount of dividend per share. This happens because the dividends are paid out of the fund’s assets, thereby reducing its total value.

5. Can I use NAV to compare two funds?

No, NAV isn’t a good comparison tool between funds. It doesn’t consider factors like investment strategy, risk level, or return on investment. Instead, look at the performance history, risk-adjusted returns, and the consistency of returns when comparing funds.