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What is NAV and How do I Calculate It?

Knowing how to travel across the world of stocks can be intimidating and can require a lot of knowledge on the same. In order to help ease you into this world, understand what net asset values are such that you have a better idea of what your investment portfolio looks like. A free Demat account is easy to create online and allows for investors to apply the knowledge provided over here.

What is Net Asset Value?

Prior to selling or buying a stock of a given company, it is pertinent that investors and traders alike have an understanding of the market value of the said stock. This applies to shares held in mutual funds and exchange-traded funds (or ETFs) whose market value is calculated by considering their net asset value.

NAV meaning: NAV or Net Asset Value can be defined as the value of all shares present in a given portfolio calculated in their entirety and which includes the cash balance.

How to Calculate NAV -

NAV calculation is easy to do and involves the following steps.

- Step 1. Subtract the value of the fund in question’s liabilities from the valuation of their assets.

- Step 2. Divide the arrived at figure above by the number of shares that are outstanding.

- Step 3. In order to understand the value of the fund in question’s total assets, add the market value of each security owned by the fund to all the cash and cash equivalents held by it.

Both, the NAV and number of shares outstanding pertaining to a given mutual fund or exchange-traded fund are likely to change on a daily basis owing to the fact that their assets and liabilities constantly alter and investors buying and redeeming share patterns vary on a daily basis.

The relevance of Net Asset Value (or NAV) lies in the fact that it helps indicate how much a single share of a mutual fund or exchange-traded fund is worth. Investors can use NAVs of different funds in order to draw comparisons about multiple companies or a single company in a given industry or market.

It is important to note that using net asset values alone isn’t sufficient to arrive at an understanding of how a mutual fund performs.

Conclusion -

Open a free Demat account such that you can better understand how net asset value works and is calculated with the stocks of your choice. It is important to do due diligence prior to making any buy, sell or hold decisions pertaining to securities  you might have your eye on. This preliminary research can reduce the potential of your incurring any risks and / or losses and can potentially allow you to accrue greater returns.

Related Blogs : What should be your strategy if your mutual fund NAV is down 20%? | Index funds versus ETFs: Choosing the right passive investment | What are ETFs And How Do They Work?

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