Net asset value
The net asset value measure the value of an investor’s claim over the mutual funds assets. Net asset value represents market value of assets. NAV is the price per unit of company’s share.
The net asset value of a mutual fund is calculated as assets less the market value of its liabilities, per share. Net asset value determines closing market prices of the portfolio’s securities.
Net asset value is calculated by deducting market value of liabilities from the market value of assets and divided by number of shares. NAV focuses on the value of investment in assets, which grows over a period of time.
Following is the formula used to calculate net asset value of mutual funds:
(a) Calculate the net asset value of close – ended funds by using the following information:
1. Market value of assets : $240 million
2. Market value of liabilities: $10 million
3. Number of shares outstanding: 15 million
Substitute the above information in the formula to compute Net asset value:
The net asset value of close – ended fund is
(b) If the current share price is $17, it would be a good deal because:
1. If the share price has increased, investors can anticipate that the prices will increase in future.
2. Investors can gain by selling their shares at a profit.
3. The increased share price will increase the total assets of the mutual fund.
The net asset value helps to track the performance and evaluate the increasing value of the shares of mutual funds. Net asset value assesses the growth rate of mutual funds in various market situations.