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Blog Mutual Funds

Net Asset Value (NAV)

Sarmaaya Desk
Sarmaaya Content Team

Key Takeaways

  1. Net Asset Value represents the net ‘value’ of any entity
  2. In the context of mutual funds, Net Asset Value (NAV) represents the share price per unit
  3. It is calculated by dividing the difference between assets and liabilities with total number of shares outstanding
  4. Net Asset Value (NAV) is used in the context of valuation of funds and pricing.

What is Net Asset Value?

Net Asset Value represents the net ‘value’ of any entity. In the context of mutual funds, NAV represents the share price per unit and is more commonly used to identify potential investment opportunities in mutual funds, ETFs or indexes.

Calculating Net Asset Value

Calculating Net Asset Value is very easy and is as follows:

NAV = (assets – liabilities)/ Total number of outstanding shares

For a given mutual fund, we are given the following data:

 

  • Value of Securities = $75m
  • Cash and equivalents = $20m
  • Accrued income = $10m
  • Accrued Expense = $2m
  • Total Liabilities = $12m
  • Shares outstanding = 1000

NAV = [(75+20+10)-(2+12)]/1000

NAV = [105-14]/100

NAV = 0.91

 

Understanding Net Asset Values

In the context of companies and organizations, ‘net asset’ is the difference between the said company’s total number assets and liabilities. NAV, however, is used in the context of valuation of funds and pricing – which then, in turn, means the difference between assets and liabilities divided by shares owned by investors. NAV, therefore, represents the per-share value of a fund, thereby making valuation and transaction easier.

Net Asset Value is usually close or equal to the company’s book value. It is more commonly used in comparison to market capitalization to determine whether or not an investment is overvalued or undervalued. It represents a fund’s market value and provides investors with a reference point around which they can determine to either buy or sell shares of funds

 




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