Net Asset Value Formula

Net asset value formula is mainly used by the mutual funds order to know the unit price of specific fund at the specific time and according to the formula net asset value is calculated by subtracting the total value of the liabilities from the total value of assets of the entity and the resultant is divided by the total number of the outstanding shares.

Source: hdfcfund.com

If you have ever invested in mutual funds, you will repeatedly hear one term. It is NAV. The full form of NAV is Net Asset Value. It is the difference between the assets and the liabilities.

Let’s have a look at the formula of net asset value.

NAV = (Market Value of Securities held by the fund + Cash & Equivalent Holdings - Liabilities of the funds) / Number of Outstanding Shares

The Onus Fund has the following information. You need to find the NAV of this fund –

• Market Value of Securities held by the fund – $450,000
• Cash & Equivalent Holdings – $50,000
• Liabilities of the funds – $200,000
• Number of Outstanding Shares – 10,000

By using the formula of NAV, we get –

• Net Asset Value = (Market Value of Securities Held by the mutual/close-end fund + Cash & Equivalent Holdings – Liabilities of the fund)/Number of Outstanding Shares
• Or,  = ($450,000 + $50,000 – $200,000) / 10,000
• Or, = $300,000 / 10,000 = $30 per share.

• In the net asset value formula, we first need to find the market value of the shares.
  • To find out the market value of the shares held by the fund, we need to apply formula –
  • The market value of the shares = Market price per share * Number of outstanding shares.
  • If the market price per share is $10 per share and the number of outstanding shares is 1000, then the market value of the shares would be = ($10 * 1000) = $10,000.

• The second component of the formula is cash and equivalent holdings. We will add this item because it is an asset.
• The third component of the formula is the liabilities of the fund.
• To find out the actual value of a fund, we need to look at the difference between the total assets and the total liabilities.
• Finally, we need to divide the difference by the number of outstanding shares to get NAV per share.

Let's say that you would like to invest in a mutual fund. What would you look for?

Many financial analysts argue that it is wiser to look at NAV rather than looking at the individual market price of the share. Here’s why.

• They think that when you look at NAV of funds, you get the misconception that NAV dictates the future benefit of the fund. This, according to them, is utterly false.
• That’s why these financial analysts mention that you should look for the quality of funds and not the NAV. Yes, NAV is important, but as an investor, you shouldn’t put too much faith in the higher or lower NAV because that doesn’t make any difference in how much return the portfolio under the fund would generate.
• Suppose you want to take advantage of higher returns, select industries that have been growing much faster than the other industries. Let’s say if you choose to invest in the IT industry instead of other industries, you will be able to generate much higher returns on your investments.

Let us now do the same example above in Excel.

This is very simple. You need to provide the Four inputs of Market Value of Securities held by the fund, Cash & Equivalent Holdings, Liabilities of the fund’s Number of Outstanding Shares.

You can easily calculate the net asset value in the template provided.