What Is Net Asset Value (NAV)?

The net asset value (NAV) represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities. Most commonly used in the context of a mutual fund or an exchange-traded fund (ETF), the NAV represents the per share/unit price of the fund on a specific date or time. NAV is the price at which the shares/units of the funds registered with the U.S. Securities and Exchange Commission (SEC) are traded

Net asset value is commonly used to identify potential investment opportunities within mutual funds, ETFs or indexes. One could also use net asset value to view the holdings in their own portfolio. To invest in any of the aforementioned assets, an investment account would be needed.

KEY TAKEAWAYS

Net asset value, or NAV, is equal to a fund's or company's total assets less its liabilities.

NAV, is commonly used as a per-share value calculated for a mutual fund, ETF, or closed-end fund.

For an investment fund, NAV is calculated at the end of each trading day based on the closing market prices of the portfolio's securities. For firms, NAV can be construed as close to its book value.

A firm's or fund's shares may trade in the market at levels that deviate from its NAV.

Understanding Net Asset Value

Theoretically, any suitable business entity or financial product that deals with the accounting concepts of assets and liabilities can have a NAV. In the context of companies and business entities, the difference between the assets and the liabilities is known as the net assets or the net worth or the capital of the company. The term NAV has gained popularity in relation to the fund valuation and pricing, which is arrived at by dividing the difference between assets and liabilities by the number of shares/units held by the investors. The fund’s NAV thereby represents a “per-share” value of the fund, which makes it easier to be used for valuing and transacting in the fund shares.

It is often the case that NAV is close to or equal to the book value of a business. Companies considered to have high growth prospects are traditionally valued more than NAV might suggest. NAV is most frequently compared to market capitalization to find undervalued or overvalued investments. There are also several financial ratios that use multiples of NAV or enterprise value for analysis.

NAV for Exchange Traded Funds

Because ETFs and closed-end funds trade like stocks on exchanges, their shares trade at a market value that can be a few dollars/cents above (trading at a premium) or below (trading at a discount) the actual NAV. This allows for profitable trading opportunities to active ETF traders who can spot and encash on such opportunities in time. Similar to mutual funds, ETFs also calculate their NAV daily at the close of the market for reporting purposes. Additionally, they also calculate and disseminate intra-day NAV multiple times per minute in real-time