Definition
Net asset value is the total value of a fund's assets minus its liabilities, usually quoted per unit or share. It is the fund's underlying value at a valuation point, not necessarily the price at which units trade.
How it works
A fund values its holdings at closing or fair prices at set valuation times, adds cash and income, and deducts fees and accrued expenses. Mutual funds deal at NAV, whereas an ETF's exchange price moves all day and can sit at a premium or discount to NAV; an indicative intraday NAV is often published.
When a fund pays a distribution, NAV per unit falls by about that amount, so comparing two NAVs understates a distributing fund's return. Total-return figures add distributions back and usually assume they are reinvested, so check that assumption.
Formula / convention
NAV per unit = (Total assets − Total liabilities) ÷ Units outstanding
Illustrative example
Illustration with fictional figures: ETF X holds assets of HK$1,030 million, has liabilities of HK$30 million and has 50 million units in issue, so NAV per unit is (HK$1,030 million − HK$30 million) ÷ 50 million = HK$20.00. Its units trade on the exchange at HK$20.20, a premium of (20.20 − 20.00) ÷ 20.00 = 1.0% to NAV. After a HK$0.50 per unit distribution, the NAV falls to about HK$19.50, which is cash returned to holders rather than a loss.
What to watch for
A mutual fund deals at NAV, but an ETF's market price can differ from NAV, especially when its underlying markets are closed or trading is thin. NAV for funds holding illiquid assets rests on valuation estimates and may be revised or delayed.