Net Asset Value (NAV) is a measurement often used to determine the value of an investment fund, such as a mutual fund or exchange-traded fund (ETF). It is calculated by subtracting the fund’s total liabilities (e.g., expenses, debts, and other obligations) from its total assets (e.g., securities, cash equivalents, and other investments). The resulting figure is typically divided by the number of outstanding shares in the fund to express the NAV on a per-share basis.
For example, suppose an investment fund has $1,000,000 in assets and $100,000 in liabilities, with 10,000 shares outstanding. The NAV per share would be $90 ($900,000 divided by 10,000 shares). Investors often use NAV as an indicator of the value of their investment in the fund, particularly at the end of each trading day. It’s important to remember that the NAV changes daily as the value of the fund’s underlying assets and liabilities fluctuate.
NAV is commonly used in financial reporting, investment analysis, and accounting when evaluating fund performance. It can serve as a basis for pricing shares in an open-end mutual fund for purchase or redemption by investors. However, NAV alone may not provide complete insight into a fund's growth potential, as factors like market trends and fund management also play a crucial role.