The net asset value of an investment fund is the unit price of each share in the fund at a given time. It is also known as NAV by its acronym in English (Net Asset Value).
Said value is the result of dividing the fund’s assets by the number of outstanding shares. It is a dynamic concept, since the management company must calculate it daily based on the market prices of the assets that make up the fund’s portfolio.
For example, if an investment fund currently has 100,000 shares outstanding and its portfolio is made up of assets with a market price of 1,000,000 euros, the NAV of the fund today will be 10 euros. However, tomorrow, the valuation of the assets that make up the portfolio will have changed and the fund’s net asset value will be different from 10.
From the investor’s point of view, the net asset value or NAV is very useful. Since it allows you to know the valuation of your investment on a daily basis. However, the concept should not be confused with that of a share price. Although they both constitute a portion of the fund and of a listed company, respectively, they have significant differences:
The price of the shares on the stock market changes every second and the investor knows its price: The NAV of the fund is calculated with the closing prices of the market of the day in question so that when the investor subscribes his shares in the fund, he does not know the price of the same.
The number of shares in circulation owned by a listed company is fixed: To modify it, an increase or reduction of capital must be carried out. On the contrary, the number of shares in circulation in an investment fund is not static but varies depending on the subscriptions and redemptions made. However, it is necessary to clarify that the movement of shares does not harm the net asset value since they are complementary movements (at the same time that shares enter or leave the value of the fund increases or decreases so that the net asset value does not change).
Both Law 35/2003 on Collective Investment Institutions and the Regulations that develop it regulate the calculation of the net asset value. The National Securities Market Commission also meticulously establishes its calculation rules in Circular 6/2008, of November 26.
The fund management companies are in charge of performing the calculation on a daily basis using the following method:
Net asset value = Net equity (NP) of the fund / No. outstanding shares
Fund PN = Fund Portfolio Value + Fund Net Return
It should be noted that in investment funds, management and deposit fees (where applicable) are implicit. In other words, the percentage corresponding to commissions is discounted on the result of the first formula indicated above. This is because they are charged directly and are already deducted from the net asset value of the fund.
Furthermore, the regulations establish that “for the purposes of applying the net asset value, those in which there is no market for assets representing more than 5% of the fund’s assets will not be considered business days.”
For example, suppose a fund whose investment policy focuses on asset investments from Japan. If today is a public holiday in Japan, it will not be a business day for the application of the NAV. For this reason, the subscription and redemption operations of the fund in question will be subject to the following day’s net asset value.