Accumulated Unit Value vs. Net Asset Value

by Rose Johnson

An annuity is a long-term contract between an investor and a life insurance company where the insurer agrees to pay the investor annuity payments at a specific time. “Accumulation unit value” represents the value of a single unit within an annuity’s separate account. A mutual fund is an investment vehicle that pools money from many investors to purchase baskets of assets, and the term “net asset value” represents the net worth of a single share in the mutual fund. Investors must understand accumulation asset value and net asset value to maximize the financial benefits of annuities and mutual funds.

Basics of an Annuity

Three basic types of annuities exist: a variable annuity, fixed annuity and index annuity. With a variable annuity, the interest rate received and the periodic payments made by the insurer at the policyholder’s retirement depend on the performance of the annuity. With fixed annuities, insurers pay the investor a fixed interest rate and fixed annuity payments, regardless of how the annuity's underlying assets perform. Investors can choose a fixed annuity that makes annuity payments for a specific period of time, such as 25 years, or until the investor’s death. The interest rates earned on index annuities depend on the performance of a certain index, such as the Russell 1000 Index.

Understanding Accumulation Unit Value

Accumulation unit value represents the measurement of a single unit value of an annuity’s separate account during the accumulation phase. The accumulation phase equals the time period during which an investor can add money to his tax-deferred annuity account. Investment companies establish separate accounts to pool money together to invest in the products of a life insurance company. When you place money in a separate account, you buy units of the account and not shares. After investing your money, the separate account buys the shares of an underlying asset. Companies calculate the accumulated unit value of a separate account once a day, generally after the close of the New York Stock Exchange.

Basics of a Mutual Fund

Mutual funds typically have low investment minimums, a policy that benefits small investors. After investors place their money in a mutual fund, the fund manager invests the money in assets that correspond with the nature of the fund. For example, a mutual fund may choose to solely invest in commodity assets. The underlying assets of a mutual fund represent the fund’s holding. “Net asset value” is the value of a single share of the fund’s total holdings.

Understanding Net Asset Value

Most mutual funds calculate net asset value once a day, typically after the close of the market. To calculate net asset value, take the total asset value minus operating expenses and divide the total by the number of units in the mutual fund. When a mutual fund distributes dividends and capital gains to investors, the net asset value is reduced. Mutual fund holders may choose to reinvest dividends at the lower net asset value. This allows investors to purchase additional shares of a mutual fund at a lower price.

Photo Credits

  • Stockbyte/Stockbyte/Getty Images