The term “net asset value” or “NAV” refers to an indicator which is used in connection with investment funds and shares (stocks).
When used in relation to investment funds, this indicator defines the actual value of a specific fund. Funds usually list their net asset value on a per-share basis. The NAV of a fund is often referred to as the fund’s intrinsic value.
To find a fund’s NAV, a fund’s total liabilities are subtracted from the market value of total investments held by the fund (total assets plus liquidity). Liabilities include administrative cost (management fee or TER). The difference is then divided by a fund’s total shares.
In more exact terms: The current value of all shares making up a fund plus the fund’s total cash reserves minus all ongoing costs, including loans and liabilities, equals the fund’s net asset value. This number is then divided between the number of (fund) shares which make up the fund. The resulting quotient indicates the value of each (fund) share.
This simplified example shows the figures which are the key to finding the net asset value of a specific investment fund.
Stock A: 20,000 stocks worth CHF 50 each (current market value)
Stock B: 10,000 stocks worth CHF 75 each (current market value)
Stock C: 10,000 stocks worth CHF 100 each (current market value)
Cash reserves: CHF 250,000
Liabilities: CHF 500,000
This translates into these figures:
Stock A, combined value of CHF 1 million (+)
Stock B, combined value of CHF 750,000 (+)
Stock C, combined value of CHF 1 million (+)
Liabilities: CHF 500,000 (-)
Cash reserve: CHF 250,000 (+)
Total: CHF 2.5 million
If 25,000 of the fund’s shares are currently in circulation, the NAV of each share would be CHF 100 (CHF 2,500,000 / 25,000 shares).
If an investor were to sell their shares in this investment fund at the above NAV, he would receive CHF 100 per share – minus possible withdrawal fees and custody fees. If an investor were to purchase shares in the fund at this time, they would pay the NAV of CHF 100 per share plus the issuing fee.
The NAV is also used to measure a fund’s performance. Example: A fund’s NAV on January 2, 2015 was CHF 180. On January 2, 2017, the fund’s NAV was CHF 200. The fund’s performance across that two-year time span was 11.1% (CHF 200 – CHF 180) / (CHF 180 / 100).
Important: Many funds charge additional fees above the TER accounted for when measuring fund performance. Additional fees may include one-time issuing and withdrawal fees and recurring custody fees.
Because these additional costs are not included in the liabilities accounted for when calculating a fund’s NAV, the actual price you pay or receive for fund shares may be lower or higher than that indicated by the NAV and performance indicators.