- NAV, or net asset value, is the official term for a mutual fund's share price. The NAV is computed by dividing the value of the fund's portfolio of securities by the number of fund shares owned by investors. The result is the value of each share owned by fund investors. The terms NAV and share value are the same for mutual fund shares.
- Mutual funds set the share price or NAV once a day. After the stock and bond markets close for the day, the fund company calculates end of day value of the securities in the fund and publishes a NAV for the day. All purchase and redemption orders received by the fund during the day are filled at the end of day NAV share price.
- For a mutual fund without sales charges or redemption fees, investors buy shares at the NAV on the date of purchase and redeem shares at the NAV on the date of sale. If a fund has a sales charge or load, the sales charge percentage is added to the NAV to determine the share price for a purchase. If a mutual fund has a redemption fee or contingent deferred sales charge, the NAV is reduced by the amount of the fee when shares are redeemed.
- All mutual fund purchases and redemptions are accomplished directly with the mutual fund company. Unlike exchange traded funds (ETFs) and closed end fund shares, mutual fund shares cannot trade at a discount or premium to the NAV. The only exception is if the fund has its own policy of sales load or redemption. The NAV makes it simple for a investor to know the value of his mutual fund account. He multiplies the NAV times the number of shares in the account and the result is the account value.
- The NAV is not the only indicator of the returns of a mutual fund. A fund is required to pay out dividends and capital gains from the portfolio to investors. When evaluating a mutual fund, the total return--including distributions as well as NAV changes--must be taken into consideration.
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