Net Asset Value (NAV) (Funds)

The Net asset value (NAV) of an investment company is the company’s total assets minus its total liabilities. Collective investment schemes (funds) will calculate and publish their NAV based on regulatory requirements and this number will be used to calculate the value of one share of the investment vehicle.

The NAV of a fund is calculated by dividing the NAV of the investment company by the number of shares outstanding. For example:

– Company NAV = 520,000,000 USD
– Shares Outstanding = 244,000 Shares
– Fund NAV: 520,000,000 / 244,000 = 2,131.14 USD per share

NAV Calculation is a middle-office function and may be performed externally by a fund administration company along with other accounting related services. The NAV calculation is vital to the administration of the fund as all transactions in fund units will be based on NAV at the dealing date. Factors that will affect NAV are:

• Capital flows (subscriptions/redemptions)
• income
• gains
• losses
• taxes
• expenses

Depending on the type of fund, fund accounting will use the information above to recalculate the NAV on a daily, weekly, monthly, or even quarterly basis. Hedge and other professional investor class funds are infamous for their infrequent or haphazard NAV publication. Further, such funds are not subject to the same rules and standards as their more common cousin, the mutual fund, meaning that there is much variation between funds in terms of their accounting practices. This can become problematic when investments held by the fund are not mark-to-market and their value may be subject to interpretation.

Mrs. Client wishes to re-allocate the funds in her occupational pension plan. With the help of her adviser she chooses a mutual fund that focuses on US utilities companies. As utilities companies are often dividend paying, her advisor rightfully informs her that asset location is important, and holding the fund in a tax deferred account would minimize her exposure to income tax.

Mrs. Client buys 300 shares of the fund, paying the price quotes by the fund company.
The total price she will pay per share is 105 USD. There is a sales charge to purchase this share class.
100 USD is the NAV of the fund. 5 USD is equal to a 5% sales charge or “load”, added on top of the NAV. For this particular fund, when she sells or “redeems” her shares, she will receive the NAV per share and will not pay any further fees to divest.