Per the U.S. Securities and Exchange Commission Web site at www.sec.gov/answers/nav.htm, the Net Asset Value (NAV) refers to the per share market value of a mutual fund, the price at which a mutual fund share is purchased from and sold to an investment company. The amount is figured following the end of each trading day by utilizing the following calculation: Total of a fund’s portfolio minus liabilities divided by the quantity of owned shares (Total – Liabilities / Number of Shares). For example, if the value of a fund’s portfolio is $20 million, and the fund has a total liabilities amount of $10 million and 1 million issued shares, the equation would be $20 million - $10 million / 1 million, which gives an NAV of $10 per share.

A mutual fund is unlike a common stock because, instead of being one stock of a company, a mutual fund brings together the money of many investors to purchase the equities of several companies. This activity helps hedge against some of the risk associated with investing in a single stock. Mutual funds consist of stocks, bonds, or cash, or some sort of variation of the three.

Although the NAV indicates the amount at which investors are going to buy or sell a share of a mutual fund, the increase and decrease of the amount is not necessarily the most accurate way to decide on the overall performance of the fund. Throughout the year, the fund manager acquires and sells stocks. Selling at a profit earns the fund capital gains. In addition, some stocks pay out part of these profits to stock owners. These payouts are called dividends. Even though capital gains and dividends are desirable, these disbursements cause the NAV to go down. In spite of the decline of the NAV, one’s investment value does not change.