The Formula for Calculating Net Asset Value

by Francesca Lee

Mutual and investment funds have different operating costs, fees, expenses, management styles. For instance, you can choose among index funds, foreign or domestic stock funds, bond funds or balanced funds. The combination of costs and management style will impact the risk profile and the fund's performance. Since the value of a fund shifts and changes all the time, use its net asset value, or NAV, as one criteria in your investment decision. Past performance offers a gauge, and not a guarantee of future performance.

The Basic Formula

The basic formula for determining net asset value is total assets minus total liabilities equals net asset value. The math works for all funds, but the results are an approximation, a snapshot in time of the value on a particular day. For example, in a single week, a fund can have assets valued at $175 million on a Tuesday that drop to $125 million by that Friday. The liability side of the ledger changes daily as well, with increases or decreases daily.

Calculating Single Share Value

Because the number of outstanding shares fluctuates daily, the per share value does as well. The majority of funds posts their NAV at the close of the day's trading session. Single share value, like other equity shares, represents how much the market is willing to pay to own a piece of the business, which in this case is a fund.

Compare Funds and Performance

Funds rated by Standard & Poor's and Morningstar generally move to the front of the pack. Funds that make the cut have an advantage of a respected stamp of approval. "U.S. News & World Report" evaluates the recommendations by these firms -- weighing short and long-term performance and capital requirements. It also publishes its "50 Best Mutual Funds" in an annual report.

Up-to-date Calculation Tools

You can compare and assess costs of more than 18,000 funds using a calculator found at the Financial Industry National Authority's (FINRA) website. Because FINRA updates its information daily, you're privy to relevant and current market data.

About the Author

Francesca Lee has more than 12 years of experience as a business writer, specializing in personal finance and education. Her articles have appeared online at Wave Newspapers, Turning Point Magazine and Facsnet. Lee studied political science at the University of California, Berkeley.

Photo Credits

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