Investing Assets & Markets Mutual Funds Understanding the Net Asset Value of Your Favorite Funds By Joshua Kennon Joshua Kennon Twitter Website Joshua Kennon is an expert on investing, assets and markets, and retirement planning. He is the managing director and co-founder of Kennon-Green & Co., an asset management firm. learn about our editorial policies Updated on November 14, 2021 Reviewed by Chip Stapleton Reviewed by Chip Stapleton Chip Stapleton is a Series 7 and Series 66 license holder, passed the CFA Level 1 exam, and is a CFA Level 2 candidate. He, and holds a life, accident, and health insurance license in Indiana. He has eights years' experience in finance, from financial planning and wealth management to corporate finance and FP&A. learn about our financial review board Fact checked by Ariana Chávez Fact checked by Ariana Chávez Ariana Chávez has over a decade of professional experience in research, editing, and writing. She has spent time working in academia and digital publishing, specifically with content related to U.S. socioeconomic history and personal finance among other topics. She leverages this background as a fact checker for The Balance to ensure that facts cited in articles are accurate and appropriately sourced. learn about our editorial policies In This Article View All In This Article How Mutual Funds Are Structured Using NAV to Set Share Price Executing Orders for Mutual Funds The Difference Between NAV for Mutual Funds and ETFs What Net Asset Value Can't Tell You Photo: Xavier Arnau / Getty Images As a new investor, you may see the phrase net asset value (NAV), next to your favorite mutual fund when you go to buy or sell shares. Mutual funds use the NAV to represent the unit—per share—price of owning a share of the fund. Net asset value, along with any dividends you receive from your investment, will impact your portfolio's total return in the long-run. Exchange-traded funds (ETFs) also use NAV to price share price. Learn what net asset value means and why you need to know it before you make investing decisions. Key Takeaways Mutual funds are pooled investments, and the NAV measures the total value of all the investments that have been pooled together in the fund.The NAV is recalculated once per day, and any trade orders placed within the past day will execute at the price determined by the new NAV.The NAV does not correlate to the financial soundness of the underlying investments in the mutual fund. How Mutual Funds Are Structured Mutual funds and exchange-traded funds (ETFs) are types of pooled funds. This means the fund manager will collect all individual investments and then invest that money into other assets. The assets that a mutual fund invests in will align with the stated goal of that particular fund. These goals could be to follow an index like the S&P 500, to represent a segment or industry of the total market, or to target a particular retirement year. All these different assets impact the price of shares in a mutual fund. The stocks, bonds, and other securities held as investments by a mutual fund will trade throughout the day, and their price will move in accordance with trading activity. Net asset value (NAV) is the net worth or book value—calculated as asset less any liabilities—of the mutual fund based upon the closing pieces of the underlying investment the fund owners. Using NAV to Set Share Price Mutual funds must calculate their NAV once per day, and typically this happens after the U.S. markets close. The buying and selling activity of a mutual fund happens once a day to protect investors from rapid market moves. At 4:00 p.m., Eastern Standard Time, the value of a mutual fund's underlying positions is added up by accounting firms based upon the closing price of the stock market and other exchanges. This value is used to determine the value of all the mutual fund's holdings. Any debts or liabilities of the mutual fund, such as stock that is sold short, is deducted to calculate the net asset value. The stock exchanges then update the share price of the mutual fund to reflect this new NAV. Because the value of the fund's assets and liabilities, as well as the number of shares available, change daily, the NAV also changes daily. This net asset value is the price at which investors can buy or sell their shares at the end of each trading day. Note Mutual fund NAV does not reflect embedded capital gains, which means that under the wrong circumstances, you could have to pay someone else's tax bill even if you experience a loss on your shares. Executing Orders for Mutual Funds Any orders that you place to buy or sell mutual fund shares are aggregated and then settled at 4:00 p.m., EST. For example, if you sell 1,000 shares of an index fund at 11:32 a.m., you won't know the price you are going to receive for those shares, or get your money until 4:00 p.m. that afternoon when the NAV is calculated. This is the reason you never see the prices of traditional mutual funds throughout the trading day. The NAV is only determined at the end of the trading day. The Difference Between NAV for Mutual Funds and ETFs In contrast to traditional mutual funds, exchange-traded funds trade throughout the day. As a result, the share price of an ETF might be at a premium, at parity, or a discount to the NAV. However, you won't know that when you execute a trade. This means you might pay more or less than the value of the underlying securities of the fund itself. Note Historically, closed-end funds have traded at discounts—in some cases, substantial discounts—to the net asset value. What Net Asset Value Can't Tell You While NAV is an important measure of the value of a mutual fund, it doesn't not tell you everything you need to know about a fund's performance, value, or potential place in your portfolio. Net asset value does not account for the sometimes significant unrealized capital gains exposure that has sometimes built up within an older mutual fund or index fund. It also can't tell you if the actual intrinsic value of the underlying holdings is reasonable or not. For example, during the dot-com boom, you could have bought a fund at its net asset value and still been paying high price-to-earnings ratios for businesses destined for bankruptcy. While NAV is an important element of mutual fund trading for investors to understand, it is not a replacement for other information about the mutual fund. Before you invest, look into a mutual fund's reputation, performance, goals, and long-term value to help you whether it is a good fit for your investment portfolio. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Guggenheim Investments. "Calculating NAVs." Capital Group. "4 Tax Myths of Mutual Funds Debunked."