What is Net Asset Value (NAV) and How to Calculate it?

Net assets or net asset value is a widely used concept in business valuations and investment fund appraisals.

Investors can use NAV as a performance indicator of a mutual fund or ETF. It is the difference between the assets and liabilities of a business or a fund.

Let us discuss what is NAV, how to calculate it, and how does it work for investors.

What is Net Asset Value?

The net asset value (NAV) or simply net assets refers to the total value of assets an entity owns after deducting all of its liabilities.

NAV is also commonly referred to as the performance indicator of mutual funds and ETFs. It is used to describe the net value of the fund in terms of net assets.

Another common use of net assets is for nonprofit organizations when they report NAV instead of net profits. It represents their net assets acquired as compared to their liabilities with or without donor restrictions.

Net assets are simply the net value of what an entity owns. It can be applied across different concepts like business valuation, project evaluations, investment appraisals, and investment funds.

Investors use NAV as a common indicator for comparing investment fund options. Regulators like SEC also require mutual funds and indices to report their NAV daily as the value of their assets and liabilities change several times a day.

How Does Net Asset Value Work?

The net asset value of a business entity is often compared with the total book value. It is commonly used as a business valuation tool for businesses with a large proportion of tangible assets and liabilities.

Any entity that owns assets and owes liabilities can have a net asset value. The concept is simply to get a net value of assets minus liabilities.

Therefore, business valuations can calculate the total assets owned at the latest market prices and liabilities to get the net worth or net value of the business.

However, the concept is not limited to businesses with tangible assets only. The same rule can be applied to businesses with intangible assets as well.

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Recently, the term has been associated with mutual funds, ETFs, and Indices as a performance indicator of these financial investments.

For these investments, NAV is calculated on per share or unit basis. Thus, it makes it easier for investors to anticipate their return on investment by comparing the per-share value of different investments.

In short, NAV is a useful financial metric to determine the financial health of an entity or investment in terms of assets and liabilities.

How to Calculate the Net Asset Value?

The calculation of net assets is a simple method. You can use this formula to calculate the NAV of a business or investment.


Net Asset Value = Total Assets – Total Liabilities

Or per share basis for an investment fund,

Net Asset Value = (Total Assets – Total Liabilities)/Total Outstanding Shares

When calculating the NAV of a business, you can use the book values or market values of assets and liabilities. However, both methods will give you drastically different results.

NAV calculations for investment funds must always be made with the latest market values. The purpose of the NAV calculations is to show the net worth of the fund at any given time.

In practice, investors use this indicator to evaluate the performance of a fund (increase or decrease in the value of assets).

For instance, the assets owned by a fund largely comprise financial securities. So, if the market value of these securities increases, the NAV of the fund increases and vice versa.


Suppose we have the following figures for a mutual fund and we want to calculate the NAV of the fund for today.

Market value of securities =$40 million   Cash and cash equivalents = $10 million

Accrued income for the day = $12 million             Short-term liabilities = $1 million

Long-term liabilities= $7 million

Accrued expense = $3 million         Total shares outstanding = 15 million


Total Assets of the Mutual Fund = $40 + $10 + $12 = $62 million

Total Liabilities of the Mutual Fund = $1 + $7 + $3 = $11 million

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Net Asset Value = (Total Assets – Total Liabilities)/Total Outstanding Shares

Net Asset Value = ($62 – $11)/15 = $ 3.4 Per Share

Net Asset Value and Mutual Funds

Mutual funds are evaluated on a daily basis at the end of the trading day. Their valuation does not upgrade like stocks in real-time.

NAV is a useful indicator to value a mutual fund. Mutual funds collect investments from different investors and set up the fund investment policy.

Each investor receives a return in proportion to the investment held in the mutual fund. Investors can sell their investment shares at any time as well.

The value of the fund depends on the market value of the assets held. A large proportion of total assets held by a mutual fund comprises financial securities. These funds must also hold a certain proportion of cash.

As the market price of the securities changes, the total value of assets changes too. Similarly, the price change in debts and obligations of the fund changes the value of liabilities.

Mutual funds must also consider accumulated income and expenses. The net of these assets, liabilities, and income/expense shows the NAV of the fund.

Mutual funds are required to upgrade their NAV at least once a day as a compliance requirement.

Appraising Fund Performance with NAV

The NAV of a mutual fund depends on several factors. For instance, a change in the market value of the financial securities held affects the value of assets.

Also, a key factor in valuing a mutual fund is the income generated by the fund investment. Mutual funds also distribute all of the income it generates in the form of dividends and capital gains.

Distributing income and realizing capital gains also decreases the value of a mutual fund. Investors can use NAV as a primary indicator of the performance of a mutual fund.

Although NAV is a common indicator of mutual fund performance. Investors can use some other indicators as well.

The total annual return of a fund is another useful indicator of appraising mutual fund performance. It is the return generated by the fund utilizing its available assets.

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Similarly, investors can use the annual compound growth rate as an alternative to NAV as well.

Net Asset Value and ETFs

NAV is also a useful indicator of measuring the value of Exchange-Traded Funds (ETFs). They also utilize available assets to generate returns for investors.

ETFs trade like stocks on the stock market. Their market price is driven by several factors including their performances and anticipations.

Thus, the actual market price of an ETF may differ from the NAV of that fund. However, it can be used as a starting point and investors can assess the price differences for trading benefits.

Net Asset Value Vs Market Price

The net asset value and the market price of mutual funds and ETFs should be the same things in theory. However, some differences remain so these two indicators can be different at times.

First, the prices of ETFs can be different due to the fact that they trade frequently like stocks. Investors may perceive an ETF depending on its prospects and result in a higher price than its NAV.

Conversely, an ETF with a higher NAV may sometimes end at a lower market price due to a signaling effect as well.

Second, due to a changing demand-supply relationship, the market price and NAV may be different at a given time in a trading day.

ETFs use a redemption mechanism to close this price difference. The redemption method uses an authorized participant to create new units (shares) of an ETF.

This authorized participant then uses the NAV basis to authorize new shares to the ETF. These shares of an ETF can then be traded in the market.

Thus, the redemption mechanism aims to reduce the gap between market price and NAV.

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