NAV (Net Asset Value) Definition | Finance Strategists | Your Online Finance Dictionary

Summary

This lesson from Finance Strategist explores the concept of Net Asset Value (NAV), explaining its significance in mutual funds and exchange-traded funds (ETFs). NAV is calculated by subtracting a fund's liabilities from its assets, with the result often expressed on a per-share basis. The video highlights key components that contribute to NAV, such as fund expenses and portfolio securities. It also emphasizes the importance of factors like performance history, manager track record, and fund diversity when choosing a fund, offering a deeper understanding of how NAV affects investment decisions.

Takeaways

• 😀 NAV (Net Asset Value) is the value of a fund’s assets minus its liabilities, often calculated on a per share basis.
• 😀 NAV is a common term used in mutual funds and ETFs to determine the value of the assets held in the fund.
• 😀 Mutual funds and Unit Investment Trusts (UITs) are required to calculate their NAV at least once every business day.
• 😀 The NAV formula is: NAV = Value of Assets - Value of Liabilities.
• 😀 Value of assets includes all securities in the portfolio, while liabilities cover fund expenses such as salaries and operational costs.
• 😀 NAV is typically expressed on a per share basis: (Value of Assets - Value of Liabilities) / Total Shares Outstanding.
• 😀 A fund’s NAV represents its market value, which fluctuates based on the value of the securities in the fund.
• 😀 The NAV per share is the price at which investors can buy or sell fund units, unlike stocks which are affected by demand.
• 😀 Comparing the NAVs of different funds doesn't show which fund is performing better, but rather shows their size.
• 😀 Important factors to consider when choosing a fund include its performance history, diversity of securities, and the experience of its fund manager.
• 😀 The performance of a fund is often compared to a benchmark such as the S&P 500 index to assess its relative performance.

Q & A

What is the Net Asset Value (NAV) of a company?

The Net Asset Value (NAV) is the value of a company's assets minus its liabilities, typically expressed on a per-share or unit basis. It helps determine the value of a fund or company's assets.

Which types of funds typically use NAV?

NAV is commonly used in relation to mutual funds and exchange-traded funds (ETFs).

How often do mutual funds and UITs calculate their NAV?

Mutual funds and unit investment trusts (UITs) are required to calculate their NAV at least once every business day.

What is the formula for calculating NAV?

The formula for NAV is: NAV = Value of Assets - Value of Liabilities.

What constitutes the 'value of assets' in the NAV formula?

The 'value of assets' refers to the total value of all the securities in the portfolio held by the fund.

What are some examples of 'liabilities' in the NAV calculation?

Liabilities include all fund expenses such as staff salaries, management expenses, operational expenses, and audit fees.

How is NAV represented when calculated on a per-share basis?

When calculated per share, the NAV is represented by the formula: (Value of Assets - Value of Liabilities) / Total Shares Outstanding.

What happens to the NAV when the value of securities in the fund changes?

When the value of the securities in the fund increases, the NAV increases. Similarly, when the value of securities decreases, the NAV decreases.

Why is NAV not directly impacted by demand for the fund?

Unlike stocks, NAV is immune to demand because it reflects the value of the assets and liabilities, not market sentiment or investor demand.

What factors should be considered when choosing a fund?

Important factors include the performance history of the fund, the diversity of securities within the fund, the track record of the fund manager, and how the fund performs relative to a benchmark like the S&P 500 index.