What Is Net Asset Value?
Net asset value answers a simple question: if you added up everything an entity owns at current value and paid off everything it owes, what would be left for the owners? For an investment fund, the assets are its securities holdings plus cash, and the liabilities include accrued fees and other payables. Dividing that net figure by shares outstanding gives NAV per share.
The concept resembles book value, but with an important difference in application: NAV calculations typically mark assets to current market or appraised values rather than historical cost. That makes NAV a live estimate of economic worth for vehicles whose value flows directly from a portfolio of assets, such as funds, REITs, holding companies, and closed-end vehicles.
How to Calculate It
The formula is NAV = total assets minus total liabilities, and NAV per share = NAV divided by shares outstanding. A mutual fund holding $505 million of securities and cash with $5 million of accrued liabilities and 25 million shares outstanding has a NAV of $500 million, or $20.00 per share. US mutual funds strike NAV once daily after the 4:00 p.m. ET market close, and all purchases and redemptions that day transact at that price.
For vehicles that trade on exchanges, market price can diverge from NAV. Closed-end funds routinely trade at discounts or premiums to NAV because their share count is fixed, while ETFs stay close to NAV thanks to an arbitrage mechanism in which authorized participants create or redeem shares whenever the gap becomes profitable. For private equity funds, NAV rests on quarterly fair-value marks of illiquid portfolio companies, so it carries real estimation judgment.
Why It Matters in Practice
NAV analysis is a core valuation methodology for REITs: analysts re-appraise a REIT's property portfolio by applying market cap rates to property-level income, subtract debt, and compare the resulting NAV per share to the stock price. A REIT trading at a persistent discount to NAV may become an activist target or an acquisition candidate, since a buyer could theoretically capture the gap.
In private markets, fund NAV drives reported performance metrics and the value of LP stakes traded in secondaries, where positions frequently change hands at negotiated discounts to stated NAV. Interview-ready candidates should be able to define NAV, compute it per share, and explain why market price and NAV can part ways for closed-end funds but not, for long, for ETFs.
