Table of contentsWhat is net asset value? — Net asset value definitionHow to calculate the net asset value? — The net asset value formulaHow to measure performance of investment funds using NAV? — NAV calculator in practiceFAQs
With this NAV calculator, you can easily calculate the net asset value of an investment fund. The net asset value (NAV) can help you calculate the value of most investment funds. Hence, it is essential to understand the NAV meaning and calculation.
This article will help you understand what net asset value is and how to calculate this metric using the net asset value formula. We will also show you its application by demonstrating some examples.
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What is net asset value? — Net asset value definition
The net asset value, or NAV for short, is defined as the difference between the assets and liabilities of an investment fund. As an investment fund is usually a pool of money from various investors, we commonly interpret this metric as the market value of the fund.
However, it is important to note that not all NAV of investment funds is equivalent to their fund value. This is because the value of the fund tends to fluctuate with the forces of demand and supply in the market. For example, two similar investment funds will have different market values if their demands differ from those of market investors.
How to calculate the net asset value? — The net asset value formula
After understanding what NAV is, it's time to learn how to calculate NAV.
Let's take Fund Alpha with the information below as an example:
- Total investment value:
- Cash and cash equivalents:
- Accounts receivable:
- Short-term liabilities:
- Long-term liabilities:
- Number of shares outstanding:
The NAV calculator requires three steps:
Calculate the fund assets:
fund assetsare defined as the value of assets owned by the investment fund. It can be calculated using the formula below:
fund assets = total investments + cash + receivable
fund assetsfor Fund Alpha is
$1,500,000 + $250,000 + $75,000 = $1,825,000.
Calculate the fund liabilities:
fund liabilitiesare the value of the liabilities and debts owed by the investment fund. You can find the
fund liabilitiesusing the formula below:
fund liabilities = short-term liabilities + long-term liabilities
Thus, the Fund Alpha's
$450,000 + $600,000 = $1,050,000.
Calculate the net asset value (NAV):
The net asset value,
NAVis the difference between the
fund liabilities, and you can estimate it using the net asset value formula:
NAV = fund assets - fund liabilities
Hence, the Fund Alpha's
$1,825,000 − $1,050,000 = $775,000.
To determine the value of each share of the fund, we need to calculate the
NAV per share. We can calculate this metric using the other NAV formula below:
NAV per share = NAV / number of shares
Using this formula, the Fund Alpha's
NAV per share is
$775,000 / 200,000 = $3.88.
Now you know how to calculate NAV by hand. Still, isn't it quicker to use our NAV calculator?
How to measure performance of investment funds using NAV? — NAV calculator in practice
After understanding how to calculate net asset value, it's time to discuss how to apply this metric to our analysis of investment funds:
The easiest way to analyze the performance of an investment fund is to measure the NAV per share differential between two dates.
For instance, let's say the NAV per share of Fund Alpha is $3.88 in 2020, and the NAV per share of Fund Alpha in 2021 is $4.50. This means that the value of the investment fund's shares has increased by approximately 16%. We can interpret this number as the performance of the investment fund.
Hence, the higher the NAV per share differential over time, the better the investment performance of the fund.
What is a mutual fund?
A mutual fund is a financial vehicle set up by pooling together money from different investors to invest in the market. The fund is usually managed by a portfolio manager, who can be a person, a team of people, or a company.
What is a ETF?
ETFs, which stand for exchange-traded funds, are financial instruments built to track the performance of an index, asset, sector, etc. ETFs can be interpreted as mutual funds that issue shares traded on exchanges.
What is a closed-end fund?
A closed-end fund is a mutual fund that can only issue a fixed number of shares to the market. As no additional shares will be issued and the shares are traded on the market, the shares tend to fluctuate with the market.
What is an open-end fund?
An open-end fund is a mutual fund that can issue an unlimited number of shares to investors who want to buy them. The shares normally have a fixed price based on their NAV and do not fluctuate due to market forces.
How can I calculate NAV per share?
The NAV calculation requires 3 steps:
Calculate the value of the fund assets.
Determine the fund's liabilities.
Apply the NAV formula:
NAV = fund assets − fund liabilities
number of sharesto obtain NAV per share.
Is NAV a good metric to measure fund performance?
Yes, NAV is a good metric to analyze the fund performance. It is the difference between the assets and liabilities of the fund. We commonly interpret this metric as the market value of the fund.
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