NAV (Net asset value)
Net asset value (NAV) is the value of a fund's assets minus its liabilities. NAV per share, or per unit, is the NAV of a share class divided by the number of shares in issue, and it is the price at which investors subscribe to and redeem from an open-ended fund.
Roles that need it
What it is
The net asset value (NAV) is what a fund is worth to its investors on a valuation date. It equals the market value of the portfolio, cash and receivables, minus liabilities such as accrued fees, payables for trades and distributions due. NAV per share is the NAV of a share class divided by the shares in issue of that class.
Open-ended funds, such as UCITS, calculate NAV at each dealing point, usually daily. Closed-ended and private funds calculate it less often, often quarterly. The valuation policy sets the pricing sources, the valuation time and the treatment of assets without a market price. In the EU the manager is responsible for valuation, and the depositary checks that NAV is calculated in line with the rules and the fund documents.
Why it matters
NAV is the price investors pay and receive, so errors move money between investors. If NAV is too high, redeeming investors are overpaid by those who stay; if too low, the opposite. Funds set error thresholds, often 0.5% or less for equity funds and lower for money market funds, above which investors must be compensated and the regulator may need to be told.
NAV also feeds performance figures, fees, key information documents and regulatory reports. Dilution from large flows is handled through liquidity management tools such as swing pricing, which adjust the dealing price around the NAV.
Worked example
Illustrative numbers. On Tuesday a fund holds securities worth 101,000,000 euro, cash of 2,500,000 euro and dividends receivable of 300,000 euro. Liabilities are a payable for a purchase of 1,500,000 euro and accrued management fees of 200,000 euro.
NAV = 101,000,000 + 2,500,000 + 300,000 minus 1,500,000 minus 200,000 = 102,100,000 euro. With 1,000,000 shares in issue, NAV per share is 102.10 euro.
If a bond price was wrong and the portfolio is really worth 100,800,000 euro, the correct NAV is 101,900,000 euro and NAV per share is 101.90. The error is 0.20 / 101.90, about 0.2%. Whether investors are compensated depends on the fund’s error threshold.
Who uses it
Fund Accountants calculate NAV and investigate price and booking breaks. Fund Reporting Analysts publish NAV and use it in reports. Depositary Oversight Analysts check NAV calculation and pricing controls. Transfer Agency Analysts apply NAV per share to investor orders. Private Fund Administrators produce periodic NAVs for closed-ended funds. Portfolio Manager Assistants use NAV and its drivers in performance analysis.
Common confusions
NAV per share differs from the market price of an exchange-traded fund, which trades during the day and can be slightly above or below NAV. NAV also differs from assets under management, which can include several funds and mandates. Finally, a published NAV is a past price: under forward pricing, investors deal at the next NAV calculated after their order.