What is Net Asset Value Per Share (NAVPS)?

In finance, the net asset value per share (NAVPS) is the value of one share of a mutual fund.

How Does Net Asset Value Per Share (NAVPS) Work?

A fund's NAVPS fluctuates with the value of its underlying investments. The formula for NAVPS is:

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

Let's assume that 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 NAVPS would be:

NAVPS = ($10,500,000 + $1,000,000 - $500,000) / 1,000,000 = $11.00

Now, let's further assume that the next day Company XYZ makes a capital gains distribution of $1 per share. This would make the NAVPS fall by $1 to $10 per share because the people who buy fund shares after this date are not entitled to the distribution.

It is important to note that like assets and liabilities, the number of shares outstanding changes on a daily basis as investors buy and/or redeem their shares.

Why Does Net Asset Value Per Share (NAVPS) Matter?

NAVPS is like stock price in that it denotes the value of one share. Also, both measures give investors a way to compare fund performance with market or industry benchmarks (such as the S&P 500). However, some analysts argue that comparing long-term changes in a fund's NAVPS is not as meaningful as comparing long-term changes in a stock's price because funds must periodically distribute capital gains to their shareholders. Instead, they argue, evaluating short-term changes in NAVPS is usually more productive.

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

It is important to note that because NAVPS is calculated once a day after the market closes, investors don't know the intraday value of their shares (which is one advantage of exchange-traded funds).