What does the 'NAV' of a mutual fund imply?

The net asset value (NAV) of a mutual fund is simply its assets minus its liabilities. In other words, NAV equals the fund's worth. If a fund has assets of $50 million and liabilities of $10 million, it would have a NAV of $40 million.

This number is important to investors, because it is from NAV that the price per unit of a fund is calculated. By dividing the NAV of a fund by the number of outstanding units, you are left with the price per unit. In our example, if the fund had 4,000,000 shares outstanding, the price-per-share value would be $40 million divided by 4,000,000, which equals $10.

The NAVs of funds are constantly changing and, as such, so are their price per shares. Funds usually wait until the end of each trading day to recalculate their NAV and individual share prices.

We should note that simply analyzing the NAV is not a good measure of the fund's growth. Funds are constantly paying out distributions of both capital gains and dividends, which reduce the NAV of the fund and do not reflect any appreciation in the price per unit. Say a fund's price per unit increased from $10 to $15, but the fund also distributed $5 per share to all unit holders. The fund hasn't simply appreciated by 50% ($10*1.5 = $15), as the per-unit cost would suggest; it has actually appreciated 100% ($10*2 = $20). So do not mistake a fund's per-share price based on NAV for the actual earnings of the fund.