How this instrument works
Net asset value per share is a fund's claim on its own holdings, sliced one share at a time. Subtract everything the fund owes from everything it owns, and divide what's left across every share outstanding. Unlike a stock's price, which is discovered continuously as buyers and sellers trade on an exchange, an open-end mutual fund calculates this figure once, after the market closes, using the closing prices of every security it holds — and that single number is the price at which the fund itself will issue new shares or redeem existing ones that day.
The formula is shaped the way it is because a fund's shares aren't a fixed pie. Investors buy in and cash out daily, so the share count in the denominator moves along with the numerator — new purchases add both assets and shares, redemptions remove both. Dividing net assets by the current share count is what keeps the per-share figure comparable from one day to the next, even as the fund itself grows or shrinks.
NAV says nothing about how a fund performed or what it costs to hold; a $10 NAV and a $100 NAV can sit on top of identical portfolios sliced into different numbers of shares. It is also a snapshot built from closing prices, so thinly traded or hard-to-price holdings get fair-valued rather than exactly priced, and for exchange-traded and closed-end funds, NAV is not the price you'd actually pay — the market price can differ from it during the trading day.
- Enter Total fund assets, $ — the market value of everything the fund holds, priced at the close.
- Enter Total fund liabilities, $ — fees payable, pending redemptions, and any borrowed money the fund owes.
- Enter Shares/units outstanding — the total number of fund shares held by all investors that day.
- Read Net asset value per share, $ — the price the fund uses to issue and redeem shares.
Worked example — a $500 million mutual fund
Consider a mutual fund reporting $500,000,000 in total assets and $200,000,000 in total liabilities, with 10,000,000 shares outstanding. Net assets — what shareholders actually own once obligations are cleared — come to $300,000,000. Divide that across the share count and NAV lands at $30.00 per share: the exact price the fund will pay to redeem a share, or charge to issue a new one, once trading closes for the day.
Because the fund recalculates this figure after every close, tomorrow's NAV depends on how its holdings were priced at that day's close and how many shares are outstanding once purchases and redemptions settle. A shareholder cashing out today collects $30.00 per share no matter what they originally paid for it — the daily NAV is the only price the fund itself will transact at, unlike a stock that changes hands at a new price with every trade.
Questions
Is NAV the same thing as a fund's share price?
For an open-end mutual fund, yes — NAV is calculated once after the market closes and is the only price at which the fund issues or redeems shares that day. For an ETF or closed-end fund, no: those trade continuously on an exchange at a market price that can sit above (a premium) or below (a discount) the underlying NAV, depending on investor demand.
Why is NAV calculated only once a day?
Because it depends on the closing prices of every security the fund holds, and those prices aren't final until the exchanges close. Compiling the value of every holding, subtracting fees and other liabilities, and dividing by shares outstanding takes time, so fund administrators typically publish the figure a few hours after the close.
Does a lower NAV per share mean a cheaper or better fund?
No — NAV per share depends on how many shares the fund happens to have issued, not on how well it is run. A $10 NAV fund and a $100 NAV fund holding an identical portfolio have simply sliced it into a different number of shares; a $1,000 investment buys the same underlying assets either way. Fund quality is a question of returns, fees and holdings, not NAV level.
What counts as a fund's liabilities in this formula?
Amounts the fund owes but hasn't yet settled: management and administrative fees accrued but unpaid, distributions declared but not yet distributed, money borrowed for leverage, and cash owed for securities bought but not yet settled. Subtracting these from gross holdings is what turns total assets into the net assets shareholders actually own.
Why does a closed-end fund trade at a discount to its NAV?
Because its shares trade on an exchange at whatever price buyers and sellers agree to, set by supply and demand rather than by daily creation and redemption at NAV. Discounts widen when a fund falls out of favor or looks likely to underperform, and narrow — or flip to a premium — when demand for the shares outpaces demand for the assets behind them.
How often does shares outstanding actually change?
Continuously for an open-end mutual fund: every purchase order creates new shares at that day's NAV and every redemption retires shares at that day's NAV, so the denominator in this formula shifts daily. Closed-end funds and most ETFs change their share count far less often, typically only through periodic creation or redemption units.
References
- SEC Investor.gov — Mutual Funds and Exchange-Traded Funds (ETFs)
- SEC Investor.gov — Investing Basics Glossary
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.