| Net asset value or NAV is a most common term used | | | | share is $50.00. Net asset value can also be simply |
| to describe the value of a mutual fund. But, many | | | | described as the price at which shares may be |
| mutual fund investors do not exactly understand the | | | | purchased or sold at a particular time. |
| real meaning of the term. However, before investing in | | | | According to financial experts, NAV is never a right |
| a mutual fund, it is very important to know the way in | | | | index to judge the performance of a mutual fund. This |
| which a mutual fund's NAV is calculated. | | | | is because the NAV is highly influenced by the fund |
| Calculating the net asset value of a mutual fund is | | | | distributions made by the fund manager. As per law, |
| really simple. When the current market value of the | | | | every mutual fund has to distribute its realized net |
| fund's net assets on that particular day are divided by | | | | gains to the investors in the form of dividends. |
| the number of outstanding shares, the resultant value is | | | | Whenever any dividend is distributed, the value of the |
| the NAV. The total net assets of a mutual fund include | | | | NAV declines on a per-share basis. In many cases, |
| all the securities held by the fund minus any liabilities. | | | | investors prefer to reinvest the dividends or fund |
| Net asset value per share has to be calculated daily. | | | | distributions rather than receiving cash. As a result of |
| Illustrated below is a simple example to understand the | | | | this option, investors can obtain additional shares using |
| NAV calculation. If the total value of assets in a fund is | | | | those distributions. And also, there would be no |
| equal to $5 million and the fund has one million shares | | | | decrease in the total value of the fund investment, |
| in the portfolio, then the NAV or the price per each | | | | even though the NAV declines. |