NAV (Net Asset Value)

How NAV is calculated and used

After markets close each business day, a fund adds up everything it owns, subtracts what it owes (management fees accrued, pending expenses), and divides by the number of units investors hold. The result is the NAV per unit.

For a mutual fund, NAV is the transaction price. Whether you place your order at 9:30 a.m. or 3:30 p.m., you buy or sell at that day's closing NAV, which is computed after the close, so you never know the exact price when you order. Orders placed after the fund's cutoff time get the next day's NAV.

An ETF also has a NAV, but you do not trade at it. ETF units trade on an exchange at market prices throughout the day, and those prices hug NAV because market makers create or redeem units whenever a gap opens, arbitraging away the difference. On large, liquid ETFs the premium or discount is usually pennies; it can widen on thinly traded funds and during volatile sessions. Providers publish premium/discount statistics, and a quick look tells you whether an ETF trades tight to its NAV.

The year-end "my fund dropped" illusion

NAV falls when a fund pays a distribution, and this fools investors every December. If a fund with a $20 NAV pays out $1 per unit in income and capital gains, the NAV becomes $19 the next day. Nothing was lost: $1 of value simply left the unit price and arrived as cash or, if you reinvest distributions, as new units. Your total value is unchanged. A NAV drop on a distribution date is bookkeeping, not a loss.

NAV is not a valuation signal

A fund with a $10 NAV is not "cheaper" than one with a $50 NAV, any more than a $10 bill split into two fives is cheaper than a ten. NAV per unit depends on arbitrary history: how many units the fund issued and what it has distributed. Unlike the face value of a bond, it promises nothing at maturity. What matters is what the fund holds, what it costs, and how it performs, never the size of the per-unit number.