NAV (Net Asset Value): Definition, Formula & How It’s Used
The NAV Formula
A fund’s total assets include all securities at current market value, plus cash and any accrued income. Total liabilities cover management fees owed, operating expenses, and any other obligations. The result is divided by total shares outstanding to arrive at the per-share NAV.
NAV Calculation Example
| Component | Value |
|---|---|
| Market value of holdings | $500,000,000 |
| Cash and equivalents | $15,000,000 |
| Accrued income | $2,000,000 |
| Total Assets | $517,000,000 |
| Total liabilities | $7,000,000 |
| Net Assets | $510,000,000 |
| Shares outstanding | 20,000,000 |
| NAV per share | $25.50 |
How NAV Works Across Fund Types
NAV means slightly different things depending on the type of fund you’re looking at:
| Fund Type | How NAV Is Used |
|---|---|
| Mutual Funds (Open-End) | Shares are bought and sold directly at NAV. Price is calculated once daily after market close. NAV is the transaction price. |
| ETFs | Trade on exchanges at market prices throughout the day. Market price tracks NAV closely but can deviate slightly. The gap between market price and NAV is called the premium or discount. |
| Closed-End Funds | Trade on exchanges like ETFs, but often at persistent premiums or discounts to NAV — sometimes 5–15% or more. |
| REITs | NAV estimates the value of the underlying real estate portfolio. Publicly traded REITs can trade at significant premiums or discounts to estimated NAV. |
When NAV Is Calculated
For U.S. mutual funds, NAV is calculated once per day, typically at 4:00 PM ET when the stock market closes. All buy and sell orders placed during the day execute at that end-of-day NAV. ETF NAVs are also computed at market close, but since ETFs trade intraday, an indicative NAV (iNAV) is published every 15 seconds during trading hours to help investors gauge fair value in real time.
What NAV Doesn’t Tell You
NAV is a snapshot of per-share value — it’s not a performance metric on its own. A fund’s NAV dropping doesn’t necessarily mean poor performance; it could simply reflect a dividend distribution (which reduces NAV by the distribution amount). Similarly, a rising NAV doesn’t account for fees already deducted. Always use total return (NAV change plus distributions) when evaluating fund performance.
NAV vs. Market Price
| Factor | NAV | Market Price |
|---|---|---|
| Based on | Calculated from underlying holdings | Determined by supply and demand on exchange |
| Update frequency | Once daily (end of day) | Continuously during trading hours |
| Applies to | All fund types | Only exchange-traded funds (ETFs, closed-end funds) |
| Transaction price for mutual funds | Yes — you buy/sell at NAV | Not applicable |
| Can diverge? | N/A (it’s the reference point) | Yes — can trade at premium or discount to NAV |
Key Takeaways
- NAV equals a fund’s total assets minus liabilities, divided by shares outstanding — it’s the per-share book value of the fund.
- Mutual fund shares transact directly at NAV; ETFs and closed-end funds trade at market prices that can deviate from NAV.
- NAV is calculated once daily at market close for most U.S. funds.
- A higher or lower NAV per share says nothing about a fund’s quality — use total return and expense ratio for meaningful comparisons.
- Persistent discounts or premiums to NAV are common in closed-end funds and can create opportunities or traps for investors.
Frequently Asked Questions
What does NAV mean in simple terms?
NAV is what one share of a fund is worth based on the market value of everything the fund owns, minus what it owes. Think of it as the fund’s net worth divided equally among all shareholders.
Why does NAV drop after a fund pays a dividend?
When a fund distributes a dividend or capital gain, cash leaves the fund. Since NAV reflects total assets, it decreases by the exact amount of the distribution per share. Shareholders aren’t losing value — they’re receiving it as a cash payment instead.
Is a low NAV better than a high NAV?
No. NAV per share is just the result of dividing net assets by the number of shares. A $10 NAV fund with 10 million shares and a $100 NAV fund with 1 million shares can hold the exact same $100 million portfolio. Performance, fees, and strategy are what matter — not the per-share price tag.
How often is NAV updated?
For U.S. mutual funds, NAV is calculated once daily at 4:00 PM ET. ETFs also have an end-of-day NAV, but an indicative NAV (iNAV) is published every 15 seconds during trading hours to give investors a real-time reference point.
Can you buy an ETF below its NAV?
Yes, briefly. ETFs occasionally trade at a slight discount to NAV due to supply-demand imbalances or during volatile markets. However, authorized participants (large institutional players) have an arbitrage mechanism to create or redeem ETF shares, which keeps the market price closely aligned with NAV in normal conditions.