What is NAV Formula?
NAV, or net asset value, is a calculation used to determine the value of a mutual fund or exchange-traded fund (ETF). It represents the total value of the fund’s assets minus its liabilities, divided by the number of outstanding shares.
How to Calculate NAV
The NAV formula is a simple calculation that can be broken down into the following steps:
- Add up the value of all the fund’s assets. This includes stocks, bonds, cash, and other investments.
- Subtract the value of all the fund’s liabilities. This includes expenses, such as management fees and operating costs.
- Divide the result by the number of outstanding shares. This gives you the NAV per share.
Example of NAV Calculation
Let’s say a mutual fund has the following assets and liabilities:
- Stocks: $100 million
- Bonds: $50 million
- Cash: $10 million
- Expenses: $5 million
To calculate the NAV, we would first add up the value of all the assets: $100 million + $50 million + $10 million = $160 million.
Next, we would subtract the value of the liabilities: $160 million – $5 million = $155 million.
Finally, we would divide the result by the number of outstanding shares, which is 1 million. This gives us a NAV of $155 per share.
Why NAV is Important
NAV is an important metric for investors to consider when evaluating mutual funds and ETFs. It gives you a snapshot of the fund’s financial health and can help you compare it to other funds with similar objectives.
Keep in mind that NAV is only a snapshot in time. It can fluctuate daily as the value of the fund’s assets and liabilities change.
Conclusion
NAV is a fundamental concept that all investors should understand. It is a simple calculation that can provide you with valuable information about the value of a mutual fund or ETF.
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