What is Net Asset Value Per Share?

The net asset value per share is attached to a mutual fund and is the method of determining the price that investors pay to get involved in the fund. Calculating this value requires taking the net asset value, or NAV, of all securities within the fund and dividing it by the number of outstanding shares held by investors. This calculation of net asset value per share determines the market price of mutual funds that pay off their investors via capital gains, which occur when the value of the securities within them rises. There are some mutual funds, however, that are traded on the open market and have their market price determined by the actions of investors.

Investors choose mutual funds to diversify their portfolios, because these funds consist of a variety of securities all rolled into one investment vehicle. Open-end mutual funds take capital from multiple investors and then return capital when the value of the securities in which they invest rises. These types of funds are not traded on the market, and, as a result, have their price determined by the net asset value per share.

A first step in calculating the net asset value per share of a mutual fund is determining the NAV, which is the total value of the assets in the fund minus the total liabilities. As an example, imagine that a fund has assets worth $100,000 US Dollars (USD) and liabilities of $20,000 USD at the end of a trading day, which is when the NAV is calculated. For that fund, the NAV is $100,000 USD minus $20,000 USD, which comes to $80,000 USD.

Once this number is reached, it is then divided by the total number of outstanding shares in the fund to determine the net asset value per share. If the fund from the example above had 4,000 shares owned by investors, that number would be divided into the NAV of $80,000 USD. This means that the market price of that specific mutual fund is $20 USD per share, which is the price investors must pay to participate in the fund.

Some funds do exist that are traded on the open market. These funds, known as closed-end or exchanged-traded funds, are traded just like stocks. Investors buy and sell shares, and the market price is based on supply and demand forces. While there is still a net asset value per share calculated, it may not match the market price. An exchange-traded fund with a lower market price than NAV per share value is said to be trading at a premium.