Mutual Fund NAV

NAV: The Number that Matters to Your Financial Future

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By: Robert F. Abbott, freelance writer and author

When you take an interest in mutual funds, you will come across something called the NAV. It’s a very significant concept and number, because it is the price of one unit of your fund. It’s the number you’ll see quoted if look up the price of your fund online or in a newspaper.

NAV stands for Net Asset Value, and is determined by adding up the prices of all the stocks, bonds, and other financial vehicles in the mutual fund, and dividing that amount by the number of units of the bought by investors in this fund.

If this is a fund made up of just stocks, then the total value of the fund can be calculated by getting the closing price of each stock on the list, and multiplying by the number of stocks owned by the fund. Needless to say, this means the value fluctuates from day to day.

The mutual fund NAV is calculated at the end of each day, after trading on the stock and bond markets has ended. Unlike stocks, where we see prices change from minute to minute or hour to hour, mutual funds are valued only at the end of the day. Consequently, a NAV calculated at the end of one day will show that price through the next full trading day.

And, the amount that a mutual fund NAV varies day by day gives us an indication of its volatility. The more variation, the more volatility. If you’re conservative and don’t want much risk, you want to find a fund with low volatility. On the other hand, if you’re actively trading funds, you’ll look for funds with high volatility, because you’ll have more opportunities to buy low and sell high.

Let’s also note that mutual fund NAV figures set out a mutual fund’s performance over time. The NAV determines what price we pay when we buy into a fund, and the NAV determines what price we will receive when we later sell.

Heads up, then. Check the mutual fund NAV of funds that interest you, and keep on eye on them. It’s the difference between profitable investing and investing that just makes you frustrated and poorer.

Next, read about Mutual Fund Diversification

Mutual Fund Fact 5: An ETF (an Exchange-Traded Fund) is a type of mutual fund (2014 Investment Company Fact Book)

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