What Does NAV Mean in Stocks & Finance?

Net asset value (NAV) is an important metric for knowing how much each share of an investment fund, like a mutual fund or ETF, is worth. However, NAV alone cannot tell investors everything they need to know about potential investments.

Calculating NAV is helpful for fund valuation and pricing. Still, there are times when it is more beneficial to look at other aspects of a fund, like total return, to determine investment opportunities. Nonetheless, investors need to know what NAV is in investing, how to calculate NAV, and when and why it makes sense to use it.

What Does NAV Mean in Finance?

NAV represents the value of an investment fund. NAV is calculated by adding up what a fund owns (the assets) and subtracting what it owes (the liabilities).

NAV, which can be helpful for value investing, is typically used to represent the value of the fund per share. So the resulting total above is usually divided by the number of outstanding shares. This makes it easier for investors to value and price the shares of a fund. Mutual funds, for example, use per-share NAV to determine their share price.

NAV is different from market capitalization, which multiples the number of a company’s outstanding shares by the current price per share.

The NAV changes daily because an investment fund’s assets and liabilities change daily based on market prices. The assets of an investment fund include the daily market value of the fund’s holdings, which are usually securities like stocks and bonds. The liabilities of a fund are usually debts owed to financial institutions and expenses, like salaries, operating costs, and other fees.

The Securities and Exchange Commission (SEC) requires that mutual funds calculate their NAV at least once each business day. Most mutual funds perform their calculations after the major U.S. securities exchanges close for the day.

The NAV Formula & How to Calculate It

NAV is calculated by taking a company or investment fund’s total assets and subtracting its liabilities. This figure is usually divided by the fund’s number of outstanding shares because NAV is generally represented on a per-share basis. The formula looks like this:

NAV = (Total Value of Assets – Total Value of Liabilities) / Number of Shares Outstanding

How NAV Is Used in Investing

NAV can be used for investments, and by investors, in a number of ways, often depending on the specific type of asset an investor is considering for their online brokerage account. It can give investors insight into a fund’s performance, but NAV doesn’t necessarily tell the whole story.

Mutual Funds

Mutual funds are usually open-ended funds, meaning that investors buy and sell shares of the fund from the fund directly and not on an exchange like a stock. Because these funds don’t trade on an exchange for market prices, NAV is used to price the fund’s shares.

Mutual funds calculate their NAV per share daily, usually at the end of the business day, and that is the price an investor will pay to buy or sell shares in the fund. Every mutual fund company has its own cut-off time for buying and selling shares. After that time, investors buying or selling shares will get the fund’s NAV for the day after their transaction order is received.

ETFs

Exchange-traded funds (ETFs) and closed-end funds are similar to traditional mutual funds.

However, one big difference between ETFs vs. mutual funds is that investors can buy and sell ETFs throughout the trading day for a market price and not the NAV per share. Investors can make buy and sell orders for traditional mutual funds once per day and only at their published NAVs.

ETFs are still required to calculate the fund’s NAV once per day, like a mutual fund. Additionally, an ETF’s NAV is calculated approximately every 15 seconds over each trading day and published on various financial websites.

Because ETFs tend to trade at a premium or a discount to their NAV, traders who invest in ETFs often compare market prices and NAV to take advantage of the differences and make investment decisions.

Example of Calculating Mutual Fund NAV

As an example of calculating mutual fund NAV, imagine that mutual fund XYZ has $100 million worth of investments in different securities, based on the day’s closing prices for each security, and $10 million in liabilities and expenses. The NAV for this fund would be $90 million. If the fund has 5 million shares outstanding, the NAV per share for mutual fund XYZ would be $18.

The NAV for mutual fund XYZ can be calculated using the above formula:

NAV = ($100,000,000 – $10,000,000) / 5,000,000 = $18

How to Interpret NAV in Stocks

Investors interested in online stock trading may be wondering what NAV means in stocks.

One thing to know is that a fund’s NAV alone doesn’t tell investors much; a high NAV for one fund is not necessarily better than a low NAV in another fund. Similar to stock prices, a high stock price doesn’t necessarily mean the stock is a better investment than a stock with a lower price.

Looking at a fund’s NAV and comparing it to another fund does not provide investors insight into which fund is the better investment. It’s more important for investors to look at NAV alongside other factors, like the fund’s past performance, the allocation of securities within each fund, and how it performs compared to benchmark indices like the S&P 500 Index.

Limitations of using NAV

If a mutual fund invests in dividend-paying stocks or fixed-income assets, these securities’ dividends and interest payments go to the investor. Additionally, a mutual fund may distribute realized capital gains to shareholders. These payouts reduce the fund’s assets and result in a lower NAV. Because these benefits lower a fund’s NAV, it shows that NAV may not be the only figure to pay attention to when analyzing the performance of a fund.

Other factors can also impact a fund’s NAV. For example, the fund’s management fee and additional fees that add up to the fund’s total expense ratio will come out of the fund’s total assets, thus affecting NAV. In addition to management fees, expenses can include costs related to the administrative, compliance, distribution, management, marketing, shareholder services, and record-keeping of the fund. It’s common practice for mutual funds to assess this debit on the fund’s assets every trading day.

When analyzing the performance of mutual funds, it can make sense to look at metrics other than NAV alone, like investment yield and the funds’ total return. The total return considers capital gains and losses from all of the securities the fund invests in, as well as the dividends and interest earned by the fund, minus the fund’s expenses.

The Takeaway

Net asset value, or NAV, is a daily calculation that can track the value of a mutual fund, ETF, or money market fund. But while this figure can be helpful to gauge a fund’s performance, it isn’t the only metric to consider. Total return, yield, and fees are also important figures when making mutual fund investing decisions.

Remember that NAV itself doesn’t tell an investor everything that they need to know, but is just one metric or data point that can be used along with an array of others to analyze funds.

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FAQ

Is NAV the same as a stock’s market price?

No. NAV and a stock’s market price are two different things. Net asset value represents a fund’s total assets minus its liabilities, divided by the number of outstanding shares. Market price is the current price of a share on the open market, which can fluctuate depending on supply and demand.

How often is NAV calculated for funds?

NAV is calculated once daily for mutual funds and ETFs, usually after the market closes. In addition, EFTs also calculate a NAV (often called an intraday NAV or iNAV) approximately every 15 seconds throughout the trading day.

Why is net asset value important?

Net asset value is important for investors because it describes the total equity or value of a fund. It can help determine the value a share of a fund has, and can help investors evaluate the overall value of an investment.

Is it good to invest when NAV is down?

If a fund’s NAV is down, that could be a sign that the fund’s performance is suffering. But it doesn’t necessarily mean that it’s a good time to invest in that fund, or a bad time to do so — other metrics must be considered along with NAV, at any given time, to determine whether an investor wants to alter their position.

What is an example of a NAV?

An example of NAV could be $18, and that would be calculated looking at a fund’s underlying securities. You’d need to know the fund’s assets and liabilities, and calculate accordingly to find NAV. Again, $18 is just an example, as NAV could be any dollar figure as it relates to the fund’s assets and liabilities.

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Mutual Funds (MFs): Investors should read and carefully consider the information contained in the prospectus, which contains the Mutual Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or SoFi's customer service at: 1.855.456.7634. Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risks. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may have tax implications.

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