How to Calculate Net Asset Value Per Share

Net Asset Value (NAV) per share represents the intrinsic value of a single share in an investment fund, such as a mutual fund or exchange-traded fund (ETF). This figure provides a standardized valuation for fund shares, which is used for transactional and reporting purposes. For many types of funds, this value dictates the price at which investors will buy or sell their shares.

Calculating Net Asset Value Per Share

The formula for NAV per share is: (Total Assets – Total Liabilities) / Total Shares Outstanding. The Investment Company Act of 1940 mandates this calculation at least once per business day, typically after major U.S. stock exchanges close. This process, known as “forward pricing,” ensures all investors who placed orders during the day receive the same price.

A fund’s total assets include the end-of-day market value of all securities in its portfolio, such as stocks and bonds. It also encompasses cash, cash equivalents, and receivables like accrued interest or dividends. Assets are valued based on current market quotations where available, or at a “fair value” determined by the fund’s board.

Total liabilities represent all of the fund’s financial obligations and accrued expenses. This includes outstanding debts, pending payments for securities purchased, and operational costs like management fees, administrative fees, and marketing expenses.

To illustrate, consider a mutual fund with total assets valued at $100 million and total liabilities of $5 million. The fund’s NAV is $95 million ($100M – $5M). If the fund has 10 million shares outstanding held by investors, the NAV per share is calculated as $95 million divided by 10 million shares, resulting in $9.50.

Significance of NAV Per Share

For open-end mutual funds, the NAV per share is the precise price at which investors purchase new shares from the fund and redeem existing shares. When an investor places an order, the transaction price isn’t known until the fund calculates its NAV after the market closes. This ensures that all transactions for a given day are executed at the same price.

Payment for redeemed mutual fund shares must be sent to the investor within seven days. While NAV is calculated for other funds like ETFs and closed-end funds, it serves more as a benchmark of value rather than the direct transaction price.

NAV Per Share Versus Market Price

A clear distinction exists between NAV per share and market price for ETFs and closed-end funds. While an open-end mutual fund’s transaction price is its NAV, ETFs and closed-end funds trade on stock exchanges throughout the day. Their market price is determined by the real-time forces of supply and demand.

This dynamic means the market price of an ETF or closed-end fund can diverge from its NAV per share. When the market price is higher than the NAV, the fund is said to be trading at a “premium.” Conversely, when the market price falls below the NAV, it is trading at a “discount.” This variance is often driven by investor sentiment, market liquidity, or short-term supply and demand imbalances.

For example, if an ETF has a NAV per share of $50 but high investor demand pushes its trading price to $50.50, it is trading at a premium. If market sentiment turns negative and the price drops to $49.50 while the NAV remains $50, it is trading at a discount.