Net Asset Value: Calculations, Formula, Calculator, & Quick Guide

Net asset Value Calculations, Calculator, Formula in mutual funds
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What Is NAV (Net Asset Value)?

The net asset value (NAV) is the total value of an entity’s assets minus the total value of its liabilities. It basically represents the entity’s net worth. Furthermore, the NAV reflects the per share/unit price of a mutual fund or an ETF on a given date or period. This makes the Net Asset Value calculation a pretty vital aspect of a mutual fund or an exchange-traded fund (ETF) investments. It is the price at which the shares/units of the funds registered with the U.S. SEC are traded. This post covers all you should know, particularly Net Asset Value Formulas and how the calculators work.

Net Asset Value Calculations,Calculator, Formula, in mutual funds
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In mutual funds, ETFs, and indices, net asset value is widely used to define future investment opportunities. Net asset value is also an important factor when taking a look at the holdings of one’s own portfolio.

Understanding Net Asset Value

A NAV can theoretically be assigned to an appropriate business entity or financial product that deals with accounting concepts such as assets and liabilities. The difference between the assets and liabilities is known as the net assets, net worth, or resources of a corporation. Over the years,  the term NAV has become common in the context of fund valuation and pricing. You calculate it by dividing the difference between assets and liabilities by the number of shares/units owned by investors. As a result, the fund’s NAV reflects a “per-share” valuation of the fund, making it easier to value and trade in fund shares.

The NAV of a company is always identical to or equal to its book value. Companies with strong growth potential have historically been priced higher than their NAV suggests. So to find undervalued or overvalued investments, NAV is often compared to market capitalization. There are also a number of financial ratios that analyze NAV or enterprise value using multiples.

The Net Asset Value Formula for a Fund

The formula for calculating the NAV of a mutual fund is simple:

NAV = Total number of outstanding shares / (Assets – Liabilities)
For a fund’s assets and liabilities, the required qualifying items should be included.

Net Asset Value and Mutual Funds

A mutual fund raises funds from a large number of investors. It then invests the funds’ collected capital in a range of stocks and other financial instruments that meet the fund’s investment objectives. Each investor receives a specific number of shares based on their investment amount. And at any time, they are free to sell (redeem the value of) their fund shares. However, since regular buying and sale (investment and redemption) of fund shares begins after the fund’s launch, a mechanism to price the fund’s shares is necessary. NAV is the basis for this pricing mechanism. As a result, when the NAVPS of a mutual fund changes, so does its price.

Mutual funds do not trade in real-time, unlike stocks, which fluctuate in price with each passing second. Mutual funds, on the other hand, are priced using an end-of-day approach based on their assets and liabilities.

The net market value of a mutual fund’s deposits, cash and cash equivalents, receivables, and pending profits are all assets. The fund’s market value calculation is a daily routine, using the closing prices of the shares in its portfolio. Since a fund’s capital can be in the form of cash and liquid assets, the portion of the fund’s capital is accounted for under the cash and cash equivalents heading. Receivables include payments such as dividends or interest due that day while pending income refers to money a fund’s earning that is yet to hit the accounts. The assets of the fund are the amount of all of these things, as well as any of their qualifying variants.

NAV (Net Asset Value) for Exchange Traded Funds

Since ETFs and closed-end funds trade on markets like stocks, their securities may have a market value that is a few dollars/cents higher (trading at a premium) or lower (trading at a discount) than the real NAV. This provides lucrative trading opportunities to successful ETF traders who are able to spot and capitalize on such opportunities in a timely manner. Either way,  ETFs, as well as mutual funds, measure their NAV on a regular basis at market close for reporting purposes. They also measure and disseminate intra-day NAV in real-time several times per minute.

NAV and Trade Timelines

It’s worth noting that, while NAV is calculated and published as of a specific business day, all mutual fund buy and sell orders are handled according to the cutoff period at the NAV of the trading date. For example, if the regulators mandate a 1:30 p.m. cutoff time, only buy and sell orders obtained before 1:30 p.m. will be honored at the NAV.  Any orders issued after the deadline will be handled using the next business day’s NAV.

Net Asset Value Calculation in Real Time

Investors also try to judge a mutual fund’s results based on the difference in NAV between two dates. For example, one might compare the NAV on January 1 to the NAV on December 31, and use the difference as an indicator for the fund’s results. Changes in NAV between two dates, on the other hand, aren’t the best indicators of mutual fund success.

Mutual funds typically distribute almost all of their earnings (such as dividends and interest) to their shareholders. Mutual funds are also required to transfer realized capital gains to shareholders. A capital gain happens when a security sells at a higher price than the purchasing price. The NAV decreases as these two elements, income, and gains, are paid out on a regular basis. As a result, even though a mutual fund investor earns intermediate income and dividends, it is impossible to express them in absolute NAV values when comparing dates.

The annual total return, which is the actual rate of return of an investment or a pool of investments for a given assessment period, is one of the best possible indicators of mutual fund success. Investors and analysts also consider the CAGR, which reflects an investment’s average annual growth rate over a period of time greater than one year when all intermediate payments for income and gains are under consideration.

Net Asset Value Calculation and Example

Assume a mutual fund has a cumulative investment of $100 million in various securities, which was a calculation of the day’s closing prices for each asset. It also has $7 million in cash and cash equivalents and $4 million in gross receivables on hand. The total day’s earnings are $75,000. The fund’s short-term liabilities total $13 million, with long-term liabilities totaling $2 million. The day’s expenditures have totaled $10,000. The fund has a total of 5 million shares in circulation. To calculate for Net Asset Value, you will have to fall back to the formula above as follows:

NAV = [($100,000,000 + $7,000,000 + $4,000,000 + $75,000) – ($13,000,000 + $2,000,000 + $10,000)] / 5,000,000

= ($111,075,000 – $15,010,000) / 5,000,000 = $19.21


The mutual fund shares will trade at $19.21 per share on the given day.

Net Asset Value Calculator

Like tons of us would prefer, there are ways to bypass going through the rigorous Net asset Value calculations above. This is by using a Net Asset Value calculator. Yea, I know that due to time constraints or simple evasion, we want better alternatives to using the Net Asset Value formula. So here’s one.

Using the Net Asset Value Calculator is pretty basic. All it requires is inputting the values for the calculation and boom!!! Your answer shows up…

In other words, the Net Asset calculator typically works as a mathematical calculator would. However, you need to put first, understand which values go into where. So I suggest you first play around with the normal Net Asset Value formula and calculations. After which you can move into using the calculator.

You can find a pretty simple Net Asset Value Calculator on the Morgan Stanley Platform.

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