Net Asset Value (NAV) is the net value of an entity’s total assets minus its total value of liabilities, further divided by the number of outstanding shares. NAV is commonly used in the context of mutual funds. It helps investors to analyse whether the fund is overvalued or undervalued and the way underlying assets have performed in preceding years.

What Is the Formula for Net Asset Value?

The net asset value of the fund shows the ‘per-share’ value of funds, making it convenient for transacting and valuing fund shares.

Net Asset Value (NAV) = (Total asset – Total Liabilities) / Total outstanding shares

It is important to put the accurate qualifying entities under assets and liabilities to get the proper NAV (Net Asset Value)

For business entities, the difference between net assets and liabilities is referred to as net worth/ net assets or capital. This term is applicable for fund pricing and valuation. 

What Is the Net Value of Assets for Mutual Funds?

Mutual funds gather funds gathered from different investors and invest the same in securities like bonds, stocks, etc. Each investor has a specific number of shares in their invested fund; the pricing of each of these shares is dependent on NAV.

Mutual funds are computed depending on the trading method and are primarily based on different assets and liabilities.

  • Assets 

The asset part of mutual funds encompasses the total market value of receivables, investments, cash equivalents, cash etc., of a specific fund. This market worth is evaluated depending on end-of-the-day methodologies which are further dependent on closing price of different securities that are present in the portfolio of the fund.

These amounts consist of a certain percentage of capital in the form of cash, liquid assets, dividends, interest payments etc. 

  • Liabilities

While calculating net asset value of mutual funds, the liabilities portion of mutual funds encompasses amount owed to lenders, outstanding payments and additional charges and fees given out to associated entities. Liabilities can also consist of other accrued expenses like staff salaries, management expenses, utilities, operating expenses etc.  

Besides these liabilities, mutual funds may also contain foreign liabilities, including pending payment that is to be given to foreign conglomerates, shares of non-residents and other sale proceeds.

The Role of NAV in the Performance of Fund

Net value of an asset is often considered the same as that of the stock price. Hence, it is believed that the funds which come with a lower NAV (Net Asset Value) are affordable and are a better investment. However, it is imperative to note that net asset value computation cannot be correlated with performance of funds. Hence, a fund with a lower NAV will not necessarily be a comprehensive instrument.

NAV shows how the assets have functioned earlier. Hence, investors should not consider net asset value as the deciding factor while opting for funds to make an investment.

NAV determines the value of funds that investors will be entitled to get at the time of investment withdrawal. The overall performance of a specific scheme of mutual funds is determined by NAV. 

How Net Asset Value is Relevant for Investors?

The net value of asset is perceived to be the same as stock price. Hence, it is considered that funds with lower net asset value are economical. For investors the NAV acts as a metric reflecting total shareholder equity position and aids in finding new investment opportunities. 

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    Raghavi Kasa
    Author Raghavi Kasa

    Raghavi likes to think that because she writes for a living, she'd be good at writing a short bio for herself. But she isn't. She is good at binging K-drama, though.

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