NAV full stands for Net Asset Value. It's a term primarily used in the context of mutual funds and represents the per-share market value of a fund's assets after deducting liabilities.
In simpler terms, NAV tells you how much each share of a mutual fund is worth. Think of it as the "price" of a single unit of the fund. It's calculated daily by dividing the total value of the fund's holdings (assets) minus its liabilities (expenses) by the number of outstanding shares.
Here's a breakdown:
- Assets: The fund's investments, such as stocks, bonds, or cash.
- Liabilities: The fund's expenses, such as management fees and operating costs.
- Outstanding Shares: The total number of shares issued by the mutual fund.
Formula:
NAV = (Total Assets - Total Liabilities) / Number of Outstanding Shares
Why is NAV important?
- Pricing: It's the basis for buying and selling shares of a mutual fund. When you buy or sell shares, the transaction typically happens at the NAV price.
- Performance Evaluation: Changes in NAV over time reflect the fund's investment performance. By tracking NAV, investors can gauge whether the fund's investments are growing in value.
- Comparison: You can compare the NAV of different mutual funds to assess their relative value. However, remember to also consider other factors like expense ratios and investment strategy before making any decisions.
Example:
Let's say a mutual fund has:
- Total Assets: $100 million
- Total Liabilities: $1 million
- Number of Outstanding Shares: 10 million
Then, the NAV would be:
NAV = ($100,000,000 - $1,000,000) / 10,000,000 = $9.90 per share
Therefore, each share of the mutual fund is worth $9.90.
In summary, NAV (Net Asset Value) is the per-share market value of a mutual fund, calculated daily, and serves as the basis for transactions and performance tracking.
