Definition
Net Asset Value (NAV)
Net asset value is the per-unit value of a fund, calculated as total assets minus liabilities divided by units outstanding, and is the official end-of-day price at which mutual fund units transact.
For Indian mutual funds, NAV is struck once daily after market close using the day's closing prices of the holdings. ETF investors transact on-exchange intraday at market prices that may differ from the last NAV, which is why the near-real-time iNAV exists to estimate fair value during the session.
The gap between an ETF's traded price and its NAV is the premium or discount, policed by authorised participants via creation/redemption. For an index fund, the difference between achieved NAV returns and the benchmark over time is the tracking difference, driven largely by costs.
Related terms
- iNAV (Indicative Net Asset Value)iNAV is a near-real-time estimate of an ETF's per-unit net asset value, recalculated frequently through the trading day from the live prices of the underlying holdings.
- Tracking DifferenceTracking difference is the actual cumulative return gap between an index fund or ETF and its benchmark over a period, typically negative because of fees and costs.
- Premium/Discount to NAVAn ETF trades at a premium when its market price is above its net asset value and at a discount when below, reflecting temporary imbalances between on-screen supply and demand and fair value.
- Index FundAn index fund is a passively managed mutual fund that aims to replicate the performance of a market index by holding the same securities in the same proportions, at low cost.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.