Legal Definitions - NAV

NAV stands for NET ASSET VALUE.

Net Asset Value (NAV) is a fundamental metric used primarily in the financial industry to represent the value of a fund's assets minus its liabilities, calculated on a per-share or per-unit basis. It essentially tells investors the intrinsic value of one share or unit of a fund, such as a mutual fund, exchange-traded fund (ETF), or real estate investment trust (REIT). It is calculated by taking the total market value of all assets held by the fund, subtracting its total liabilities (like expenses, fees, and debts), and then dividing that result by the total number of outstanding shares or units.

• Example 1: A Stock Mutual Fund

  Imagine a mutual fund that invests in a diverse portfolio of publicly traded stocks. At the end of a trading day, the fund calculates the total market value of all the stocks it owns, adds any cash it holds, and then subtracts its daily operating expenses, management fees, and any other outstanding liabilities. If the resulting net value is $100 million and the fund has 10 million shares outstanding, its Net Asset Value per share would be $10.00. This figure is what investors would typically see as the fund's closing price for that day, representing the underlying value of its holdings.

• Example 2: A Real Estate Investment Trust (REIT)

  Consider a REIT that owns a portfolio of commercial office buildings. To determine its NAV, the REIT would appraise the current market value of all its properties, add any cash reserves, and then subtract its total debts (like mortgages on the buildings) and other operational liabilities. If the total value of its real estate and cash, minus all debts and expenses, amounts to $500 million, and the REIT has 50 million shares issued to investors, its Net Asset Value per share would be $10.00. This provides a benchmark for investors to understand the underlying value of the real estate assets held by the trust, separate from its market trading price.

• Example 3: A Private Equity Fund

  A private equity fund invests in privately held companies, often taking significant ownership stakes. Unlike publicly traded funds, these assets are not valued daily. Periodically, perhaps quarterly or annually, the fund's administrators will value its portfolio companies based on various financial metrics and market conditions. They will then add any cash and subtract all fund liabilities, including management fees, carried interest, and operational costs. If the total net value of these private company investments and cash, after subtracting all liabilities, is $1 billion, and the fund has 100 million investor units, its Net Asset Value per unit would be $10.00. This NAV provides investors with an updated valuation of their investment in the fund, reflecting the performance and value of the underlying private companies.