Net Asset Value

Net asset value (NAV) of an investment fund is the amount by which the fund's assets exceed its liabilities. NAV is normally calculated per share by dividing the net assets (assets minus liabilities) of the fund by total outstanding shares of the fund. Such calculation is carried at the end of each trading day.

An open-end mutual fund issues and buys back its shares/units at their net asset value plus any fees. Shares of other investment vehicles like closed-end funds and exchange-traded funds (ETFs) trade close to net asset value most of the time.

Formula

Net Asset Value =Fund's Asset − Fund's Liabilities
Total Outstanding Shares

Example

Topline Asset Management started its Global Balanced Fund on 1 January 2013 with $50 million in capital. Following are the details of the fund's assets and liabilities at the end of first year.

USD in thousand
Local equity9,000
Global equity15,000
Local bonds8,000
Global bonds12,000
US Treasury5,000
Preferred stock10,000
Cash2,000
 
Management fee payable500
Accrued expenses200

The fund initially had 2 million shares. It issued new shares and redeemed some old ones during the year such that its outstanding shares as at the year end are 2.2 million.

Find the fund's net asset value.

Solution

USD in thousand
Local equity9,000
Global equity15,000
Local bonds8,000
Global bonds12,000
US Treasury5,000
Preferred stock10,000
Cash2,000
Total assets61,000
Management fee payable(500)
Accrued expenses(200)
Net assets of the fund60,300
Net Asset Value (per share) =Value of Net Assets
Outstanding Shares
Net Asset Value (per share) =$60,300,000= $27.41
2,200,000

It means that the fund will redeem its share at $27.41 less fee if any, if the investor intends to surrender them.

Written by Obaidullah Jan