Net Asset Value


Net asset value is the value of an entity’s assets minus the value of its liabilities, often in relation to open-end or mutual funds, since shares of such funds registered with the U.S. Securities and Exchange Commission are redeemed at their net asset value. This may also be the same as the book value or the equity value of a business. Net asset value may represent the value of the total equity, or it may be divided by the number of shares outstanding held by investors, thereby representing the net asset value per share.

Net Asset Value

Net Asset Value, or NAV, refers to net market value of a financial asset. The metric is calculated by adding market value of the financial asset minus the value of the liabilities. NAV also refers to the book value of an asset that is usually below the market price per share.

NAV is determined for equity financial asset, mutual funds, and exchanges traded funds (ETFs). However, it is most often used for mutual funds as the US mutual funds are redeemed at their net asset value. In the US, the net asset value of the fund is calculated every day using closing prices at around 4:00 EST. The funds are usually valued at amortized cost instead of market value to determine the NAV.

Importance of NAV for Investors

Complex accounting systems are used to determine the capital inflow of a fund, sales and purchase of investments and the associated gains, losses, income, and expenses of the fund. When NAV of a fund increases, value of the shares in the fund goes up as well. However, if the NAV decreases the value of shares then the fund decreases as well.

NAV divided by the number of units or shares represents what each investor will receive once all the holdings are sold and the proceeds are divided among the investors. Mutual funds and ETFs are traded in the market as stocks; their values are subject to the market forces. As a result, their NAV per share varies also. A high NAV per share is a good sign for investors representing a positive return on investment, while opposite is the case with a low or negative NAV.

In the context of a company, net asset value represents liquidity of the company, i.e. the amount that will be left over once the company sells all the assets and pays off the liabilities. A negative NAV means that the company’s assets are not enough to fulfill the liability. However, a negative NAV does not mean that the company is dead. Sometimes a company invests heavily in lucrative business opportunities using loans due to which the NAV of the company might be negative. But once the investment bears fruit, the financial situation of the company will turn positive.

Further Reading

  • A neural network approach to mutual fund net asset value forecasting – [PDF]
  • Investor sentiment and noise traders: Discount to net asset value in listed property companies in the UK – [PDF]
  • Portfolio characteristics and net asset values in REITs – [PDF]
  • Determining intra-day net asset value of an actively managed exchange traded fund – [PDF]
  • Neural network models for forecasting mutual fund net asset value – [PDF]
  • What affects the discount to net asset value in the UK-listed property companies? – [PDF]
  • The discount to net asset value, unbundling and shareholder interests – [PDF]
  • Money market funds run risk: Will floating net asset value fix the problem – [PDF]