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What is a Mutual Fund Net Asset Value?

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  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 26 June 2019
  • Copyright Protected:
    2003-2019
    Conjecture Corporation
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Mutual fund net asset value is the method by which a mutual fund's market value, which is the price investors pay for shares in the fund, is determined. This value is calculated by taking the value of the assets held in the fund and subtracting the liabilities in the fund. As a fund's market share price is determined by the mutual fund net asset value, or NAV, the price is not subject to change because of market supply and demand. The NAV is determined at the end of a day's trading and is dependent on the closing prices of the securities within the fund.

As opposed to stocks and bonds, mutual funds are investment vehicles that take money from multiple investors and pool those funds together. Those funds are then invested in various securities, and they pay off when the value of those included securities goes up, which produces capital gains for investors. The overall value of the fund must be reflective of all of the securities within it, which is why the mutual fund net asset value is calculated.

For an example, imagine that a fund has assets that are worth $100,000 US Dollars (USD) and liabilities totaling $10,000 USD at the end of a particular trading day. To calculate the mutual fund net asset value, the $10,000 USD in liabilities is subtracted from the $100,000 USD in assets. This produces a NAV for this fund of $90,000 USD for that day.

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From that total, someone can then calculate the market price per share of the mutual fund by dividing the number of outstanding shares held by investors. Using the example above, imagine that there are a total of 10,000 outstanding shares in the fund. Dividing the mutual fund net asset value of $90,000 USD by 10,000 outstanding shares produces a NAV per share of $9 USD. This is the price that investors must pay to become involved in the fund.

It is important to note that most mutual funds determine their share price in this manner, as opposed to stocks, whose market prices are based solely on the whims of investors. There are, however, exceptions to this rule, specifically closed-end and exchange-traded funds. While these funds do have a mutual fund net asset value, the NAV does not determine the price per share of the funds. Instead, the supply and demand forces determine these prices, as these funds, unlike normal mutual funds, may be traded on the open market.

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