Understanding NAV: Calculation and Impact
The price of a fund, often referred to as the NAV price or unit price, is the fundamental metric used when trading fund shares. This guide explains what NAV represents, how it is calculated, and what factors influence its value.
What is NAV?
NAV is an abbreviation for Net Asset Value. It represents the current market value of a single unit in a fund. When you buy or sell fund shares, this is the price per unit used for the transaction.
How is Fund Price Calculated?
Since a fund contains a basket of securities such as stocks and bonds, its price is derived from the combined market value of these underlying assets.
The calculation follows a straightforward formula:
- Total Assets: Add the market value of all securities held by the fund.
- Net Assets: Deduct any liabilities and fees, such as the management fee.
- NAV Price: Divide the Net Assets by the total number of outstanding fund units.
Formula: Total Fund Assets / Number of Units = NAV Price
When are Fund Prices Set?
Unlike stocks, which trade in real-time, most mutual funds are priced once per banking day. This means you typically buy or sell at an “unknown price” that is determined after the market closes.
At Quartal, the majority of funds have a cut-off time of 15:30. Orders placed before this time are executed using that day’s calculated NAV. Orders placed after 15:30 are settled using the NAV calculated on the following banking day.
Factors Affecting Fund Value
The primary driver of a fund’s NAV is the performance of its underlying investments. If the stocks or bonds within the portfolio increase in value, the fund’s total assets grow, leading to a higher NAV. Conversely, if the market declines, the NAV will decrease accordingly.
Buying Funds: Amounts vs. Units
When purchasing funds, you typically specify a currency amount (e.g., 10,000 SEK) rather than a specific number of units. The number of units you receive is determined by dividing your investment amount by the NAV price on the day the trade is executed.
Common Questions
Is there a difference between NAV, fund price, and unit price?
No, these terms all refer to the same concept: the market value of a single share in the fund.
Who calculates the NAV?
The NAV price is calculated and published daily by the fund management company responsible for the fund.
How often is the price updated?
Fund prices are generally updated every weekday, excluding holidays when the relevant markets are closed.
