Net Asset Value: Explanation, Calculation, & More

Key Takeaways: 
 

• The net asset value tells you the per unit value of a mutual fund, company, or organisation. 
   
• Most organisations use the net asset value formula to evaluate prices. Learning how to calculate net asset value helps you monitor your investment’s worth. 
   
• NAV is used across various areas, including the calculation of a company's and private equity valuation.

Money can be a mischief sometimes. One day, you invest it in something and wait. The very next moment, money will decide whether to put a smile on your face or make you think about your choices. Those numbers you see in your account aren’t just numbers; there is some logic behind every rupee. I know it sounds a bit extravagant, but it is true.

Talking about investments, mutual funds, and other investment platforms have a hidden layer that is calculated behind the scenes. You will never know the actual process, and probably wouldn’t even ask questions about it. 

I know this is a bit weird to think about all these things, because what will we do with such information? But trust me, it is important to know such information if you are an investor. 

What is a Net Asset Value?

A Net Asset Value reflects the per-share unit price of a mutual fund or exchange-traded fund. This value is calculated daily as the total fund’s assets minus its liabilities. Then whatever is left is divided by the amount of outstanding shares. This approach serves as the key metric for evaluating investments, particularly in mutual funds and private equity. 

But how to calculate net asset value? And is there any net asset value formula? Of course. I am not going to leave you hanging with half information. Here is the net asset value calculation of a company using the net asset value formula: 

NAV = Assets - Liabilities

NAV per share = (Assets - Liabilities) / Total number of outstanding shares

I know you didn’t understand a word I said above. Don’t worry, scroll a little bit more to learn more about NAV calculations. 

How to Calculate NAV of Mutual Fund With Example 

Fun fact: Did you know that NAV is calculated every single day, as soon as the market closes? The fund is simply used to check everything that a person owns. Here, all the amounts that he owes are removed, and then the remaining amount is spread across various units. 

Hers is how it works:

1. First, the fund sums up the total assets like stocks, bonds, cash, and dividends. 
2. After adding up, all the liabilities are subtracted from the calculated amount, i.e., expenses and fees.
3. At last, the remaining amount is divided by the total available units. 

Here is a simple formula on how to calculate NAV of mutual fund with example: 

NAV = (Total Assets − Total Liabilities) ÷ Total Units

Let’s assume a company has: 

NAV = (5000 − 50) ÷ 100

NAV = ₹49.5 per unit

Using NAV, individuals can also know how many units they are rewarded with when they invest. Here is how it happens. 

₹1,00,000 (Fund A)

₹10

10,000 units

₹1,00,000 (Fund B)

₹20

5,000 units

Through this table, we can see how the NAV is different, but the total investment values stay the same. The irony is, NAV works like a daily snapshot of your fund’s value, which is updated every day. 

Bonus Tip: A fun fact about NAV is that it is not a stock price that can be over- or undervalued as per market demand. The NAV prices here are controlled by demand, and the NAV is controlled by the size of AUM.