Net Asset Value - NAV

Written By
Paul Tracy
Updated August 5, 2020

What is Net Asset Value - NAV?

In finance, the net asset value (NAV) of a company is its total assets minus total liabilities. It is more often referenced concerning investment funds where NAV is the underlying value of one share of the fund. This is figured by dividing the amount of net assets of the fund by the number of shares outstanding.

How Does Net Asset Value - NAV Work?

To find the NAV of a fund, the formula is:

NAV = (Market Value of All Securities Held by Fund + Cash and Equivalent Holdings - Fund Liabilities) / Total Fund Shares Outstanding

Let's assume at the close of trading yesterday the Company XYZ mutual fund held $10,500,000 worth of securities, $1,000,000 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 + $1,000,000 - $500,000) / 1,000,000 = $11.00

The NAV of a fund will change daily as the value of securities, cash held, liabilities, and the amount of shares outstanding (if an open-end fund) fluctuate.

Why Does Net Asset Value - NAV Matter?

NAVs are like stock prices in that they denote the value of one share. Also, they give investors a way to compare fund 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 a stock's price because funds periodically distribute capital gains to their fundholders. Instead, they argue, evaluating short-term changes in NAV is usually more productive.

Many mutual funds have to keep more cash on hand when their NAVs rise. This is because investors tend to sell their shares when prices are high, and the fund managers must redeem those shares at the NAV. Thus having a high NAV sometimes leaves less money for investing and can even have a counterproductive effect on the fund.