Net Asset Value (NAV)
What it is:
How it works/Example:
Let's assume at the close of trading yesterday that a particular mutual fund held $10,500,000 worth of securities, $2,000,000 of cash, and $500,000 of liabilities. If the fund had 1,000,000 shares outstanding, then yesterday's NAV would be:
NAV = ($10,500,000 + $2,000,000 - $500,000) / 1,000,000 = $12.00
A fund's NAV will change daily as the value of a fund's securities, cash held, liabilities, and the number of shares outstanding fluctuate.
Why it matters:
Net asset values are like stock prices in that they measure the value of one share of a fund. Also, they give investors a way to compare a fund's performance with market or industry benchmarks (such as the Standard & Poor's 500 or an industry index). However, some analysts argue that comparing long-term changes in a fund's NAV is not as meaningful as comparing long-term changes in its share price because funds periodically distribute capital gains to their fundholders, thus reducing their NAV.