What Is the Net Asset Value?

What Is the Net Asset Value?

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

The Net Asset Value, or NAV, is the total value of an entity’s assets minus the total value of its liabilities. It is often used by mutual funds, ETFs, and other investment companies to correlate the value of an individual unit or share of the fund. When you invest in these types of companies, you’re basically buying shares at their NAV price, which changes on a daily basis as the market fluctuates. While NAV doesn’t tell you everything about a fund, it does give you a per-share value that can help you make informed investment decisions.

Related Questions

1. How is Net Asset Value calculated?

The Net Asset Value is calculated by subtracting the total value of a company’s liabilities from its total assets. This includes cash, investments, accounts receivable, property, equipment, and other resources owned by the company. The result is then divided by the total number of outstanding shares.

2. Is a higher or lower Net Asset Value better?

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It’s not about whether a higher or lower Net Asset Value is better, but more about what the NAV indicates. A higher NAV could mean the fund has performed well and the assets have grown in value. However, it doesn’t necessarily mean it’s a good investment as the price you’re buying at could be high. You therefore need to consider other factors too.

3. Does Net Asset Value change?

Yes, the Net Asset Value changes continuously as the value of the assets and liabilities fluctuate. This is reflected in the NAV per share, which investment companies report at the end of each trading day.

4. What does Net Asset Value mean for mutual funds?

For mutual funds, the Net Asset Value represents the price per share. When you invest in a mutual fund, you buy shares at their NAV price. The mutual fund company calculates the NAV at the end of each trading day based on the total value of the fund’s assets minus its liabilities, divided by the number of outstanding shares.

5. Can negative Net Asset Value occur?

While rare, a negative Net Asset Value can occur if a company’s liabilities exceed its assets. This typically indicates the company is in financial distress.